The silent fiscal crisis that is currently consuming almost 5% of the entire U.S. economy

Source: Yellow Original Title: The Silent Fiscal Crisis Consuming Nearly 5% of the Entire U.S. Economy Right Now

Original Link: https://yellow.com/es/news/la-silenciosa-crisis-fiscal-que-consume-casi-el-5-de-toda-la-economla-de-estados-unidos-en-este-momento The United States faces an increasing fiscal challenge as interest payments on public debt rose to a record $1.47 trillion in Q3 2025, bringing federal, state, and local debt service to levels not seen in nearly three decades and highlighting the growing financing costs of national deficits.

The data, aggregated by the Bureau of Economic Analysis and reflected in charts showing how interest costs have skyrocketed in recent years, illustrate how debt service has become one of the fastest-growing federal obligations, nearly doubling over the past four years and now taking up a larger share of the economy.

Increase in interest payments as a proportion of GDP

Interest spending at the federal, state, and local levels now accounts for about 4.7% of the United States’ gross domestic product (GDP), close to the highest proportion in 27 years.

As a share of GDP, this places U.S. interest costs above many of its OECD peers, where average debt service burdens remain lower.

Economists point out that the rise in interest payments is due to a combination of long-term debt accumulation and higher borrowing costs following Federal Reserve rate hikes earlier in the decade.

According to projections from the Congressional Budget Office, net interest costs are expected to grow faster than other major budget items over the next decade, increasing pressure on federal finances concerning social and discretionary spending.

A structural fiscal burden

The magnitude of the interest burden has broader implications for government policy.

In 2025, interest payments are expected to surpass one trillion dollars for the first time in a full fiscal year, a level some analysts describe as the “new normal” for U.S. public finances.

This represents a sharp increase from about $345 billion at the start of the COVID-19 pandemic in 2020.

As Treasury securities mature and are renewed at higher yields, reflecting elevated long-term interest rates, the cost of servicing the debt is expected to remain structurally high.

Research suggests that rising debt levels may also exert upward pressure on long-term interest rates as markets incorporate concerns about fiscal sustainability.

Budget dilemmas and fiscal flexibility

The growing share of the budget allocated to interest payments limits fiscal flexibility in other areas such as infrastructure, education, and healthcare.

Analysts say that as interest costs increase relative to revenue, policymakers face tough decisions on spending priorities and taxation, with fewer resources available for discretionary programs without further expanding deficits.

Interest payments have also become a significant part of federal revenue, reducing maneuvering room during economic recessions or emergency spending situations.

Projections indicate that, without changes in fiscal strategy, debt service could displace other priorities and exert long-term pressure on public finances.

Historical context and policy implications

The United States has managed high debt burdens in the past, for example, after World War II, and reduced debt ratios through strong economic growth and fiscal adjustments.

But current trends differ in that debt service is increasing at a time of relatively moderate GDP growth and persistent deficits, a combination that will be closely watched by both investors and policymakers.

As the debate continues over solutions—including economic growth strategies, spending reforms, and possible fiscal consolidation—the magnitude of interest costs in 2025 highlights how federal debt service has shifted from a routine obligation to a central economic challenge with implications for the broader fiscal outlook of the United States.