The Cost of Higher Interest Rates

The amount of interest paid by the U.S. government is one of the fastest growing expenditures of the federal government. With a national debt in excess of $21 trillion, small increases in the interest rate results in the government paying billions of dollars in additional interest.

Interest rates have been at historic lows for nearly a decade, but rates are starting to rise. This is good news for investors, but bad news for the federal government. With a $21 trillion debt, a 1% rise in the interest rate will cost the U.S. government $210 billion of additional interest. As illustrated in the chart below, that is more than the federal government spent on eight Departments last year.

This additional interest cost will add to the annual overspending and make it more difficult to balance the budget. It will also exacerbate the budget battles in Congress.