Interest on U.S. debt is becoming a top driver of future deficits, as the sheer size of past borrowing overwhelms the fiscal outlook

U.S. debt is expected to continue soaring in the coming decades not because of excesses committed by future lawmakers, although that’s certainly possible, but because interest payments on past borrowing will increasingly dominate spending. Americans got a reminder of that outlook as the U.S. crossed a grim fiscal threshold this week, when first-quarter data confirmed debt is now bigger than the economy. As of March 31, debt held by the public stood at $31.27 trillion, while nominal GDP over the prior 12-month period was an estimated $31.22 trillion, pushing the debt-to-GDP ratio to 100.2% “US sovereign debt has hit levels where interest expense is becoming a primary driver of the deficit. In a ‘Fiscal Dominance’ regime, the Fed’s ability to aggressively hike rates to curb inflation is constrained, as doing so risks a fiscal or financial crisis,” analysts at Deutsche Bank said in a note on Thursday, adding that such an environment often encourages higher-for-longer inflation. Federal budget deficits are already tracking at more than $2 trillion this fiscal year, adding to the mountain of debt, with interest payments alone headed for $1 trillion. Interest costs will soar to $2.1 trillion by 2036, when publicly held debt is expected to balloon to 120% of GDP, according to the Congressional Budget Office. An earlier analysis from Deutsche Bank pointed out that the CBO assumes the primary deficit—the shortfall between revenue and spending excluding interest payments on debt—is expected to remain relatively stable over the next decade and beyond at about 2% of GDP. That comes even as spending on Social Security and Medicare will jump to account for the growing numbers of baby boomers heading into retirement. But after including interest payments, the total deficit will steadily widen from around 6% of GDP today to nearly 10% by the mid 2050s. The gap between primary and total deficits has historically been narrow, analysts said in Febru