U.S. household spending rose 6.1% in the 12 months through August, up from annual growth of 4.3% at the end of last year, the Commerce Department reported. Americans kept buying food, travel, couches and Halloween decorations despite inflation and gloomy views of the economy.
That spending helped lift second-quarter 2026 economic growth. During the week, the government revised the figure upward, citing consumer spending and business investment.
Spending Through the Worry
At Chicago’s Bar Roma, customers gathered for $10 cocktails and $11 bruschetta. Kathleen Harper and her husband would normally share a few appetizers, but they ordered the $50 tasting menu instead. “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 still worries about the economy and rising gas and grocery prices. But she felt secure enough to enjoy a happy-hour deal.
Her mix of anxiety and spending sums up the moment. Households say they’re uneasy about prices, and they’re spending anyway.
The Government’s Own Bill Is Climbing
Washington faces a bill of its own. U.S. government borrowing costs have reached their highest levels in decades. The benchmark 10-year Treasury yield is above 5%, and officials estimated net interest costs at about $1.05 trillion in the first 11 months of fiscal year 2026.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, warned that higher borrowing costs could feed on themselves. 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.”
Here’s how the cycle works: investors demand higher yields to lend to a heavily indebted government. That raises Washington’s interest bill and borrowing needs. Investors then ask for still higher yields.
Markets Say Not Yet
Some bond-market experts see more room. “A fiscal apocalypse is not upon us just yet,” TD Securities strategists Gennadiy Goldberg and Molly Brooks said in a recent note. TD still estimated fiscal 2026 interest expenses at about $1.1 trillion if rates stay 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 remain near current levels.
Higher costs pass through gradually, the analysts said. U.S. government debt has a weighted-average maturity of about 5.9 years. The average coupon on Treasury securities excluding bills was 3.1%, and the average interest rate on U.S. debt, about 3.4%, remained below nominal economic growth. Nominal GDP grew at an annualized 8.5% in the second quarter, according to the latest Bureau of Economic Analysis estimate.
Matthew Reese, head of global bond strategies at L&G Asset Management, called fears of an imminent crisis “exaggerated.” He acknowledged “valid concerns” about a negative feedback loop. But he said the U.S. retains much of the dollar’s “exorbitant privilege,” and Japan has coped with higher debt levels. The loop grows more dangerous, Reese said, when nominal growth falls and debt relative to the economy rises persistently.
The Congressional Budget Office projected federal debt held by the public at about 101% of GDP in fiscal 2026.
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said longer-term yields have risen “largely been a real rates story.” In a BMO survey, 1% of respondents said the labor market would be the first area to show clear stress from higher real rates. Housing was named by 42%, stocks by 26% and corporate credit by 21%. Lyngen said the “only durable constraint on even higher bond yields would be indisputable evidence that either the economy or risk assets are buckling under the pressure of elevated borrowing costs.”
Why This Matters: Strong consumer spending and a $1.05 trillion federal interest bill are happening at once, and the two stories are linked by borrowing costs. Analysts in the source say the government isn’t near a breaking point. They also project interest costs rising to $1.6 trillion by fiscal 2029 if yields stay high. In the BMO survey, 42% of respondents named housing as the first area likely to show stress from higher real rates. Housing is where many households feel borrowing costs most directly. From a center-left perspective, the question is who absorbs the strain if the economy weakens. Even the most optimistic analysts tie the outlook to evidence that growth and markets can bear these rates.