US Racks Up $652 Billion in Debt Costs as Rates Hit 11-Year High

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US Racks Up $652 Billion in Debt Costs as Rates Hit 11-Year High

• Higher interest rates mean bigger debt servicing costs
• US budget gap widens 170% in first nine months of year

By Viktoria Dendrinou
July 13, 2023 at 2:00 PM EDT
Updated on July 13, 2023 at 4:24 PM EDT

The cost of servicing US government debt jumped by 25% in the first nine months of the fiscal year, reaching $652 billion and contributing to a major widening in the budget deficit.

For the nine months through June, the federal deficit hit $1.39 trillion, up some 170% from the same period the year before, according to Treasury Department data released on Thursday.

The widening shortfall may play into Republican lawmakers’ pressure to curtail federal spending. While the GOP, which controls the House, did a deal with the Biden administration to suspend the debt limit earlier this summer, a fresh fight looms over appropriations for the 2024 fiscal year, which starts Oct. 1.

Higher interest rates have been a key driver of the deficit, with the Federal Reserve boosting its benchmark rate by 5 percentage points since it began hiking in March last year. Five-year Treasury yields are now about 3.96%, versus 1.35% at the start of last year. As lower-yielding securities mature, the Treasury faces steady increases in the rates it pays on outstanding debt.

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