Bank of America estimates that rising interest rates will cost the US government an additional $50 billion in annual interest payments on Treasury bills. This recurring expense stems from the Treasury's frequent rollover of short-term debt, which reprices rapidly following Federal Reserve policy changes.
According to the analysis, Treasury bills currently make up more than 20% of the total US debt portfolio. The Treasury issues approximately $500 billion in these bills on a weekly basis. Unlike long-term bonds, these instruments adjust to market rate shifts within days of a central bank decision.
Strategists at the bank anticipate three rate hikes of 25 basis points each between September and December. These moves are expected to push the federal funds rate target range to 4.25% to 4.50%, driven by persistent inflation and a strong labor market.
Total federal net interest payments are projected to surpass $1 trillion in fiscal year 2026, marking a record share of government revenue and spending. Meanwhile, the national debt is forecast to reach between $38 trillion and $40 trillion.
