The Federal Reserve’s war on inflation isn’t just painful for home buyers and people with credit card debt. Uncle Sam is getting squeezed by higher borrowing costs, too.
The cost to finance America’s growing mountain of debt is rising rapidly as the Fed scrambles to put out the inflation fire by raising interest rates and shrinking its nearly $9 trillion balance sheet.
During fiscal 2022 alone, the federal government made $475 billion in net interest payments, up from $352 billion the prior year, according to the US Treasury Department. For context, that’s more than the government spent on veterans’ benefits and transportation – combined. And it’s nearly as much as the $677 billion spent on education.
By 2025 or 2026, the United States may hit a bleak milestone: Federal interest payments could exceed the country’s entire defense budget, according to Moody’s Analytics. For context, defense spending stood at $767 billion in fiscal 2022.
Although there’s little reason to doubt Washington’s ability to make interest payments, the surging cost to finance America’s $31 trillion in debt leaves less room for Congress to spend on other priorities, including everything from infrastructure and the climate crisis to the military.
“Regardless of who wins the midterms or in 2024, there are really difficult decisions that will have to be made. This is really going to handcuff them,” said Moody’s Analytics
