According to a Treasury Department report released yesterday, the United States government paid interest on its national debt amounting to $1.049 trillion for the year to date—the first time above $1 trillion—in the nation’s history. That is significant because debt servicing costs rose to 30% more than the same period last year at the current national debt level of $35.3 trillion.
Interest payments rise sharply because the benchmark interest rates are at the highest level in 23 years, and the Federal Reserve is holding them there. Total debt service interest expense for the year is $1.158 trillion. Net interest payments is $843 billion because this figure will be generated by taking the difference between the interest earned on government investments and the interest paid on government bonds. That will be higher than any single federal expenditure category except Social Security and Medicare.
This overshadows a budget deficit that keeps rising. In August, the deficit spiked to $380 billion; last year at this time, it came in with a surplus of $89 billion. The 2023 surplus had been artificially inflated by accounting adjustments for student debt relief. The shortfall for fiscal 2024 soared almost to $1.9 trillion, up 24% over the previous year.
The Federal Reserve is likely to cut interest rates a quarter of a percentage point at its next meeting, but yields in Treasury have been falling lately. The 10-year note yielded about 3.7% on Tuesday; still, it is lower than three-quarters of a percentage point from the beginning of July. That reflects market expectations that the Fed is getting ready for future adjustments in monetary policy.
At such times when the federal government draws towards closing the fiscal year, the gross amounts paid to service the national debt remind them of the fiscal challenges facing the country and the necessity to deploy strategic financial management. As such, the heavy debt service payments alone speak of the implications at large concerning sustained high-interest rates and the burgeoning national debt on the federal budget.
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