The $38 trillion national debt is to blame for over $1 trillion in annual interest payments from here on out, CRFB says

The nonpartisan Committee for a Responsible Federal Budget warns the U.S. has entered an era of trillion‑dollar annual net interest costs as servicing a $38 trillion national debt (about 100% of GDP) pushed net interest spending to roughly $1 trillion in FY2025 (the federal budget line was $970 billion). CRFB projects interest payments will climb to about $1.5 trillion by 2032 and $1.8 trillion by 2035, and could exceed $2 trillion in the mid‑2030s under certain policy scenarios; by contrast net interest was $345 billion in FY2020. The group and other analysts including JPMorgan’s CEO, the Fed chair and market commentators warn this structurally higher debt service will crowd out investment, slow growth and raise intergenerational burdens unless policymakers enact a credible plan to put the debt on a downward, sustainable path.

Analysis

The Committee for a Responsible Federal Budget reports that the U.S. has entered a new fiscal regime in which annual net interest costs have reached roughly $1 trillion in FY2025 (the federal budget line item was $970 billion), driven by a $38 trillion national debt equal to about 100% of GDP. Net interest costs have roughly tripled since FY2020 (when they were $345 billion), and the CBO and CRFB project a multi‑year upward trajectory rather than a temporary spike.

CRFB baseline projections show interest payments rising to approximately $1.5 trillion by 2032 and $1.8 trillion by 2035, with scenario outcomes exceeding $2.0–$2.2 trillion in the mid‑2030s if certain tariff rulings or permanent legislative provisions occur. Prominent policymakers and investors — including the Fed chair, JPMorgan’s CEO and Ray Dalio — have flagged the risk that rising debt service will crowd out public investment, slow growth and compress wages, amplifying intergenerational burden.

The near‑term market implication is a structurally higher interest‑rate environment and greater fiscal policy risk: faster Treasury supply growth (the Peterson Foundation noted the debt rose from $37T to $38T in two months) and uncertain legislative outcomes increase volatility and constrain fiscal flexibility absent a credible debt‑reduction plan.

Key Decisions for Investors

• Shorten portfolio duration and use interest‑rate hedges to protect against a structurally higher yield curve and increased Treasury supply,
• Monitor fiscal policy triggers (CBO/CRFB updates, Supreme Court tariff rulings, and major legislative changes) and adjust risk exposure ahead of potentially market‑moving fiscal shifts,
• Stress‑test portfolios for slower growth and higher rates, preserve liquidity, and favor quality credit and assets with lower duration sensitivity until there is clarity on a credible debt stabilization plan