U.S. Government to Spend Record $1.2 Trillion on Interest Payments in 2024, Surpassing Military Costs

The U.S. government is set to spend an unprecedented $1.2 trillion on interest payments in the fiscal year 2024, marking the highest expenditure of its kind ever recorded. This massive outlay eclipses military spending for the first time in history.

The soaring interest payments are a result of increased deficit spending, particularly during the pandemic, coupled with the Federal Reserve’s aggressive interest rate hikes aimed at combating inflation. As a consequence, the government is facing escalating costs for servicing its national debt, held in Treasury securities.

Interest payments, now the third-largest expenditure in the federal budget after Social Security and Medicare, consumed 2.4% of U.S. Gross Domestic Product (GDP) in 2023. The Congressional Budget Office projects that this figure could rise to 3.9% over the next decade.

The sharp rise in interest payments is driven by two main factors. Firstly, substantial government borrowing during the pandemic to support the economy and households has significantly increased the national debt. Secondly, the Federal Reserve’s rate hikes, which began in 2022, have exacerbated the cost of servicing this debt.

Despite expectations of gradual interest rate cuts by the Federal Reserve starting next week, the financial strain on the budget is anticipated to persist. The outcome of the upcoming presidential election could further influence the deficit trajectory. Both former President Donald Trump and Vice President Kamala Harris have proposed new tax cuts and spending measures, which could exacerbate the deficit. Harris has suggested offsetting these costs with higher taxes on the wealthy and corporations, whereas Trump’s proposed tariffs on foreign goods face skepticism from economists regarding their revenue potential compared to the proposed tax cuts.