US Federal Deficit and Interest Rate Growth

Companion Excel Workbook: Federal Debt in Context

The federal government has run a deficit in 27 of the past 31 fiscal years.

In FY2025 net interest reached $970 billion and became the larger component of the deficit, exceeding the $805 billion “primary” (i.e. non-interest) deficit for the first time in the era of trillion-dollar deficits[1].

FY2026, preliminary: receipts $5.40 trillion, outlays $7.40 trillion, a $1.99 trillion deficit, and net interest above $1 trillion for the first time ($1.14 trillion on CBO’s measure). The charts below end at FY2025; the FY2026 bars are added when Treasury publishes the final fiscal-year statement later in October 2026[3].

Spending Has Outrun Receipts for Three Decades

Federal receipts and outlays as two lines, FY1996-FY2025, with the gap between them shaded red in deficit years and green in the FY1998-FY2001 surplus years; FY2025 deficit $1.77T

Two lines and the space between them: the shaded gap is the deficit (red) or surplus (green). Source: OMB Historical Table 1.1 | Chart: CRE42.com

US government receipts increased by 3.6x from 1996–2025, from $1.45 trillion in FY1996 to $5.24 trillion in FY2025.

But US government outlays increased almost 4.5x, from $1.56 trillion to $7.01 trillion.

The four surplus years, FY1998–FY2001, are the only green in the window; the gap has been red in every year since.

Interest Is Now the Larger Component of the Deficit

Net interest and the primary deficit as two lines, FY1996-FY2025; the interest line crosses above the primary deficit in FY2025 at $970B versus $805B

The deficit split into its two components. Primary deficit = outlays excluding net interest, minus receipts; negative values are primary surpluses. Sources: OMB Historical Tables 1.1, 3.1 | Chart: CRE42.com

In FY2025 net interest ($970 billion) crossed above the primary deficit ($805 billion): more of the deficit now comes from servicing past borrowing than from current spending in excess of receipts.

The two lines nearly touched once before, in FY2015 ($223 billion of interest against a $219 billion primary deficit), but at less than a quarter of today’s scale and with interest flat rather than climbing.

The COVID response pushed the primary deficit to $2.75 trillion in FY2020. It has since fallen back by more than two-thirds, while net interest nearly tripled from its FY2021 level of $352 billion.

The primary deficit responds to policy each budget year; net interest is the compounding echo of every past deficit, and can only be slowed by lower rates or smaller debt.

Interest Consumes a Growing Share of Receipts

Net interest as a percent of federal receipts, FY1996-FY2025: 16.6% in FY1996, trough of 6.9% in FY2015, 18.5% in FY2025

Coverage = receipts ÷ net interest, the sovereign analogue of a lender’s debt service coverage ratio. Sources: OMB Historical Tables 1.1, 3.1 | Chart: CRE42.com

Interest payments comprised 16.6% of receipts in FY1996, fell to 6.9% by FY2015 as rates declined faster than debt grew, and reached 18.5% in FY2025, above the 1990s peak.

In credit terms, interest coverage was down to 5.4x in FY2025, from 14.6x at the FY2015 trough.

US Government Debt Rates Continue Rising

Effective rate on US federal debt FY1996-FY2025: rate fell from 6.6% to a 1.6% trough in FY2021 and rebuilt to 3.3% by FY2025 while net interest bars quadrupled

The effective rate is what the Treasury actually pays: net interest divided by average debt held by the public. Sources: OMB Historical Tables 3.1, 7.1 | Chart: CRE42.com

The effective interest rate on U.S. federal debt fell from 6.6% in FY1996 to a trough of 1.6% in FY2021, then rebuilt to 3.3% by FY2025. The FY2025 rate is half the FY1996 rate, yet dollar interest is four times larger, $970 billion against $241 billion as the total debt increased from $3.7 trillion to $29.2 trillion.

Assuming market rates remain near the FY2025 average 10-year Treasury yield of 4.3%, the effective rate reaches approximately 4.2% by FY2030 on refinancing alone[2]. The FY2026 average was 4.4%, and the yield stood above 5% in October 2026, its highest since 2002[4]. Each 10 basis points adds roughly $30 billion of annual interest at the current debt base, and the base itself grows with each year’s deficit: $1.77 trillion in FY2025 and $1.99 trillion, preliminary, in FY2026.

▶ Future Federal Debt: Interactive Estimation Model

The model starts from FY2025 actuals (receipts $5,236B, operating outlays $6,041B, net interest $970B, debt held by the public $30,167B) and projects fifteen years based on your selection of variables. The effective rate converges toward your market rate at one-third of the gap per year, the calibrated repricing speed[2].

Receipts growth: 4.50%

Operating outlays growth: 4.50%

Market rate on new borrowing: 4.50%

Nominal GDP growth: 4.00%

Fiscal year	Receipts ($B)	Outlays ($B)	Net interest ($B)	Deficit ($B)	Coverage ratio*	Debt held by public ($B)	Total debt ($B)	Debt held by public, % of GDP

* Coverage ratio = receipts divided by net interest: how many times over the government’s revenue covers the interest on its debt. It is the sovereign analogue of the debt service coverage ratio a lender computes on a property, with two differences: the numerator is gross revenue rather than net operating income, and the denominator is interest only, because the Treasury refinances principal at maturity rather than amortizing it. FY2025 actual: 5.4x.

For educational purposes only, this is not a forecast; every path is determined by the four user-set assumptions. The model runs on debt held by the public, the share that bears market interest; total debt adds intragovernmental holdings, held flat at the FY2025 level of $7,208B, since trust fund balances turn on demographics rather than on any assumption above (see the reconciliation on the Debt Comparisons tab of the companion workbook). Interest is charged on average debt during the year. Default settings are illustrative round numbers near recent history, not projections. GDP base: BEA calendar-year 2025.

What to Watch For in 2026 and Beyond

Sources to Track the Federal P&L:

Source	Report or Series	Frequency	Notes
U.S. Treasury	Monthly Treasury Statement (MTS)	Monthly; Final in October	Receipts, outlays, deficit; official FY figures
OMB	Historical Tables 1.1, 3.1, 7.1	Annual, with the Budget	The consistent long series behind both charts
U.S. Treasury	Average Interest Rates on Treasury Securities	Monthly	Marginal vs. average rate; the repricing gap
U.S. Treasury	Quarterly Refunding statements	Quarterly	Issuance mix: bills vs. coupons sets repricing speed
FRED	GS10	Daily	Market-rate proxy used in the calibration

Footnotes

[1] Deficit figures on this page are OMB Historical Tables basis (FY2025: $1,774.7B). The Treasury MTS prints $1,775.4B for the same year; the small difference is timing and coverage. Interest is net interest, paid on debt held by the public; interest credited to trust funds is an internal transfer.

[2] Repricing speed: the effective rate moves toward market rates only as maturing debt is refinanced. Treasury data confirm roughly one-third of publicly held marketable debt matures within a year (weighted-average maturity about 70 months as of late FY2025), so about a third of the stock reprices to current market rates each year. Sources: Treasury Monthly Statement of the Public Debt; U.S. GAO, Federal Debt Management (GAO-26-107529, April 2026).

[3] Congressional Budget Office, Monthly Budget Review: Summary for Fiscal Year 2026, October 8, 2026 (preliminary): receipts $5,403 billion, outlays $7,396 billion, deficit $1,993 billion; net interest on the public debt $1,143 billion against $1,028 billion in FY2025. CBO’s net-interest measure is broader than the OMB budget function used in this page’s charts (which read $970 billion for FY2025); Treasury’s final FY2026 Monthly Treasury Statement, Table 9, supplies the function-basis figures and is the basis on which the FY2026 bars will be added. Through August 2026 the function-basis figure already stood at $1,017 billion (Treasury MTS, August 2026).

[4] 10-Year Treasury constant maturity (Federal Reserve H.15 via FRED GS10, monthly, averaged October 2025 through September 2026: 4.37%; DGS10 daily: 5.29% on September 30, 2026 and 5.31% on October 5, 2026, the highest close since May 14, 2002).

Methodology & Data Notes

Companion Workbook

inflation-debt-in-context.xlsx: companion workbook for the Federal Debt Sustainability section. This page draws on the P&L History tab; the interactive model below uses its FY2025 figures as the starting point.