U.S. government net interest costs reached an estimated $1.05 trillion in the first 11 months of fiscal year 2026, while the benchmark 10-year Treasury yield climbed above 5%. Household spending rose 6.1% in the 12 months through August, the Commerce Department reported. Those figures put resilient consumer demand beside a federal borrowing burden that keeps getting more expensive.
Spending Holds Up
Spending on food, travel, furniture, Halloween decorations and other goods and services picked up from annual growth of 4.3% at the end of last year, despite inflation and consumers’ gloomy views of the economy. Growth in the second quarter of 2026, the latest period with available data, was revised upward during the week, as consumer spending and business investment drove the increase.
At Chicago’s Bar Roma, customers gathered over $10 cocktails and $11 bruschetta. Kathleen Harper and her husband would normally share a few appetizers, but this time they chose the $50 tasting menu. “After a long day—I work from home—I like to just get out of the house,” Harper said. She sells fraud-protection services and said, “Business has been good, because fraud, unfortunately, is up.” Harper said she worries about the economy and rising gas and grocery prices, but felt secure enough to enjoy a happy-hour deal.
Borrowing Costs Rise
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, warned that higher borrowing costs could add to 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.”
The cycle she described could start when investors demand higher yields to lend to a heavily indebted government. That would increase Washington’s interest bill and borrowing needs, potentially leading investors to demand even higher yields.
TD Securities estimated fiscal 2026 interest expenses at about $1.1 trillion if rates stayed elevated. The firm projected financing costs of $1.4 trillion in fiscal 2027, $1.5 trillion in 2028 and $1.6 trillion in 2029 if yields stayed near current levels. The Congressional Budget Office projected federal debt held by the public at about 101% of gross domestic product in fiscal 2026.
Crisis Not Imminent, Analysts Say
TD Securities strategists Gennadiy Goldberg and Molly Brooks wrote in a recent note, “A fiscal apocalypse is not upon us just yet.” They said the United States doesn’t have to refinance all its debt at higher rates right away. Government debt carries a weighted-average maturity of about 5.9 years, and TD Securities put the average coupon on Treasury securities excluding bills at 3.1%.
The average interest rate on U.S. debt, about 3.4%, remained below nominal economic growth. In the second quarter, nominal U.S. gross domestic product grew at an annualized rate of 8.5%, according to the latest Bureau of Economic Analysis estimate. TD Securities said that growth helped keep the debt burden manageable despite large deficits.
Matthew Reese, head of global bond strategies at L&G Asset Management, called fears of an imminent fiscal crisis “exaggerated.” He said the United States retains much of the “exorbitant privilege” of the dollar and remains “the most liquid and still highly rated economy.” Reese also warned that higher yields can raise fiscal burdens as governments refinance debt and fund deficits. TD Securities said Treasury yields could reflect stronger growth, expected Federal Reserve rate hikes, higher oil prices, corporate bond issuance and fast-money investor repositioning.