The US federal government is expected to spend approximately $970 billion on interest payments in fiscal year 2025. This figure represents 3.2% of GDP and has now surpassed national defense spending, becoming the second-largest budget item after Social Security.
Net interest costs have reached 3.6% of GDP and are projected to hit 4%, a level not seen in a decade. In contrast, the interest burden for corporate America has fallen to 0.4% of GDP, as many companies locked in low fixed-rate debt during the 2020–2021 period.
The US Treasury failed to extend its debt maturity profile during the pandemic, continuing to issue short-duration securities. Consequently, the government faced significantly higher refinancing costs when the Federal Reserve began raising interest rates in 2022.
The Congressional Budget Office and the Government Accountability Office have labeled the current fiscal trajectory unsustainable. Projections suggest that net interest costs could rise to 4.6% of GDP by 2036 if no major policy changes are implemented.
Corporate entities will eventually face similar refinancing challenges as their debt maturities come due between 2026 and 2027. However, the federal government remains the most exposed borrower due to its shorter-duration portfolio and current fiscal choices.
