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\n \n The Federal Reserve\u2019s war on inflation isn\u2019t just painful for home buyers<\/a> and people with credit card debt. Uncle Sam is getting squeezed by higher borrowing costs, too.\n <\/p>\n \n The cost to finance <\/a>America\u2019s growing mountain of debt is rising rapidly as the Fed scrambles to put out the inflation fire<\/a> by raising interest rates <\/a>and shrinking its nearly $9 trillion balance sheet. <\/a>\n <\/p>\n \n During fiscal 2022 alone, the federal government made $475 billion in net interest payments,<\/a> up from $352 billion the prior year, according to the US Treasury Department. For context, that\u2019s more than the government spent on veterans\u2019 benefits and transportation \u2013 combined. And it\u2019s nearly as much as the $677 billion spent on education.\n <\/p>\n \n By 2025 or 2026, the United States may hit a bleak milestone: Federal interest payments could exceed the country\u2019s entire defense budget, according to Moody\u2019s Analytics. For context, defense spending stood at $767 billion in fiscal 2022.\n <\/p>\n \n Although there\u2019s little reason to doubt Washington\u2019s ability to make interest payments, the surging cost to finance America\u2019s $31 trillion in debt <\/a>leaves less room for Congress to spend on other priorities, including everything from infrastructure and the climate crisis to the military.\n <\/p>\n \n \u201cRegardless of who wins the midterms or in 2024, there are really difficult decisions that will have to be made. This is really going to handcuff them,\u201d said Moody\u2019s Analytics economist Dan White.\n <\/p>\n \n For many years, Washington was able to borrow nearly for free. The Fed kept interest rates very low to stimulate growth (and encourage inflation) and investors around the world clamored to buy US debt. This situation made it easy and affordable for Congress and the Trump and Biden administrations to borrow aggressively.\n <\/p>\n \n But the situation changed beginning in the spring of 2021 as inflation began to surge in the United States and in many other major economies. The Fed was forced to eventually pivot from emergency stimulus mode to inflation-fighting mode, a shift that even Fed officials concede happened too late, with the benefit of hindsight.\n <\/p>\n \n With inflation proving to be very stubborn, the Fed has already raised interest rates<\/a> by three percentage points so far this year. Another jumbo-sized interest rate hike is widely expected on Wednesday when the Fed concludes its latest policy meeting, and another half a percentage point hike in December. That would lift rates to 4.5% \u2014 up from near zero at the start of this year.\n <\/p>\n \n All of this will make it that much more expensive to finance US debt going forward.\n <\/p>\n \n \u201cLow rates, a consequence of low inflation, are an enabler. But high inflation is kryptonite to easy money policy and excessive spending,\u201d said Peter Boockvar, chief investment officer at Bleakley Financial Group.\n <\/p>\n \n Boockvar notes that during the third quarter, federal gross interest payments hit $737 billion on an annualized basis<\/a>, according to last week\u2019s GDP report. That\u2019s up from $516 billion two years ago and rivals the nearly $800 billion<\/a> that is expected to be spent on defense in fiscal 2023.\n <\/p>\n \n But White of Moody\u2019s notes that gross interest payments include interest the government pays to itself and said net interest is the more relevant category to watch here.\n <\/p>\n \n The Congressional Budget Office recently estimated over the summer that net interest payments will exceed defense spending in 2029.\n <\/p>\n \n \u201cThat made everyone a little bit nervous,\u201d said White.\n <\/p>\n
\n New York<\/span>
\n CNN Business<\/span>
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