U.S. government borrowing costs reached their highest levels in decades as household spending rose 6.1% in the 12 months through August. The Commerce Department reported that spending accelerated from annual growth of 4.3% at the end of last year, even as consumers faced inflation and rising gas and grocery prices. People keep spending; Washington’s debt tab keeps climbing.
Households Spend, Despite the Pressure
At Chicago’s Bar Roma, customers gathered for $10 cocktails and $11 bruschetta. Kathleen Harper and her husband, who would normally share a few appetizers, chose the $50 tasting menu. “After a long day—I work from home—I like to just get out of the house,” Harper said.
Harper sells fraud-protection services. “Business has been good, because fraud, unfortunately, is up,” she said. She worries about the economy and rising gas and grocery prices, but felt secure enough to enjoy a happy-hour deal. Her account captures both sides of the spending figures: money is still moving through businesses, while the costs of necessities remain on her mind.
Economic growth in the second quarter of 2026, the latest data available, was revised upward during the week. Consumer spending and business investment drove that growth, according to the report.
The consumer figures sit beside a different set of numbers from the institutions managing federal borrowing. The benchmark 10-year Treasury yield topped 5%, while government net interest costs reached an estimated $1.05 trillion in the first 11 months of fiscal year 2026.
The Debt Machine’s Rising Price
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, warned that higher borrowing costs could reinforce rising debt and interest expenses. After the 10-year yield crossed 5%, she said in a statement last month, “The real threat is the debt spiral. If interest begets debt, and debt begets interest, eventually debt will spin out of control. A fiscal crisis, once unthinkable, is now a distinct possibility.”
Her warning describes a cycle involving investors and government borrowing: investors could demand higher yields to lend to a heavily indebted government, raising Washington’s interest bill and borrowing needs, which could prompt investors to demand still higher yields. That’s the machinery behind her warning.
Some bond-market experts said the United States remained some distance from a fiscal breaking point. They said the rise in yields could reflect economic resilience as well as debt concerns. “A fiscal apocalypse is not upon us just yet,” TD Securities strategists Gennadiy Goldberg and Molly Brooks said in a recent note.
TD estimated fiscal 2026 interest expenses at about $1.1 trillion if rates stayed elevated. It projected financing costs of $1.4 trillion in fiscal 2027, $1.5 trillion in 2028 and $1.6 trillion in 2029 if yields remained near current levels. Those figures are projections, not final bills.
The bank’s analysts said Washington doesn’t have to refinance all its debt at higher rates immediately. U.S. government debt has a weighted-average maturity of about 5.9 years, so higher borrowing costs pass through gradually as bonds mature and the government issues new debt. TD Securities put the average coupon on Treasury securities excluding bills at 3.1%.
Growth Holds the Pressure—for Now
The average interest rate on U.S. debt, about 3.4%, remained below nominal economic growth. Nominal U.S. gross domestic product grew at an annualized rate of 8.5% in the second quarter, according to the latest Bureau of Economic Analysis estimate. TD said that growth helped keep the debt burden manageable despite large deficits.
Federal debt held by the public was projected at about 101% of GDP in fiscal 2026, according to the Congressional Budget Office. TD Securities said a fiscal crisis wasn’t imminent, though the debt trajectory remained a concern for investors.
Matthew Reese, head of global bond strategies at L&G Asset Management, called fears of an imminent U.S. fiscal crisis “exaggerated.” He also warned of a “negative feedback loop” as higher yield costs increase the fiscal burden when governments refinance debt and fund deficits. Reese said the U.S. retains the “exorbitant privilege” of the dollar’s role as the most liquid and still highly rated economy, and that the country was “some way away from a fiscal crisis.”
Reese said the feedback loop grows more dangerous when nominal growth falls, causing debt relative to the economy to rise persistently. He noted that “countries such as Japan have coped with significantly higher debt levels than the U.S., with very low nominal growth, without suffering a fiscal crisis.”
The source offers no example of mutual aid, direct action or household influence over borrowing decisions. But it does report where investors see vulnerability: in a BMO survey, 42% named housing as the first area to show clear stress from higher real rates, compared with 26% who named stocks, 21% corporate credit and 1% the labor market. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said the “only durable constraint” on higher bond yields would be indisputable evidence that the economy or risk assets were buckling under elevated borrowing costs.