U.S. Debt Costs Soar to $3 Billion a Day Amid Record-High Interest Expenses

The daily cost of servicing the $35.3 trillion U.S. debt has skyrocketed to $3 billion, according to Apollo chief economist Torsten Sløk. This figure has doubled since 2020 as rising interest rates have significantly increased the burden on the federal budget.

U.S. Debt Interest Costs Double Since 2020, Fed Rate Cuts May Ease $3 Billion Daily Burden

According to Apollo chief economist Torsten Sløk, the cost of repaying the interest on the $35.3 trillion U.S. debt has increased significantly in recent months. It now amounts to an average of $3 billion daily.

He emphasized in a note on September 3 that this encompasses Saturdays and Sundays.

Since 2020, daily interest expense has increased by twofold, surpassing the $2 trillion mark reported approximately two years ago. At that time, the Federal Reserve initiated its campaign of aggressive rate increases to control inflation.

This resulted in a higher cost of servicing U.S. debt, as Treasury bonds offered higher yields. However, the Fed is now prepared to begin reducing rates later this month, which could result in the opposite.

“If the Fed cuts interest rates by 1%-point and the entire yield curve declines by 1%-point, then daily interest expenses will decline from $3 billion per day to $2.5 billion per day,” Sløk estimated.

In the interim, the federal government will conclude its fiscal year at the end of this month, and the year-to-date cost of paying interest on U.S. debt was already $1 trillion several months ago.

However, the next president is anticipated to exacerbate budget deficits, thereby offsetting some of the benefits of lower rates and adding to the total debt accumulation, even if Fed rate cuts alleviate the burden on interest payments.

Deficit Projections Rise Under Both Trump and Harris, With Trump's Policies Widening the Gap More

A recent Penn Wharton Budget Model analysis found that the deficit will expand under either Donald Trump or Kamala Harris, per Fortune.

However, there is a substantial distinction between the two.

Under Trump's tax and spending proposals, primary deficits would increase by $5.8 trillion over the next decade on a conventional basis and by $4.1 trillion on a dynamic basis, which accounts for the fiscal policy's economic consequences.

Under a Harris administration, primary deficits would increase by $1.2 trillion on a conventional basis over the next decade and by $2 trillion on a dynamic basis.

However, JPMorgan analysts declared the outlook unsustainable, irrespective of the presidential election's outcome, while acknowledging the possibility of increased deficits under Trump.

“Irrespective of the election outcome, the trend since the pandemic has been profligate fiscal policy that is absorbing substantial amounts of capital and is incentivizing additional private investment,” the bank said. “At the same time, the en masse retirement of baby boomers is shifting a substantial share of the population from a high-savings period in life to a low-savings period, depressing the supply of capital.”