Josh Weiner
A one-percentage-point move in the Federal Reserve’s benchmark interest rate adds roughly $95 billion a year to the Treasury’s debt-servicing bill, according to Bank of America research, underscoring why the White House has pushed so hard for lower rates under Fed Chair Kevin Warsh.
President Trump and his administration have repeatedly pressed the Federal Open Market Committee to bring rates down, arguing current levels are squeezing consumers, particularly homebuyers facing elevated mortgage costs tied to the Fed’s benchmark rate.
The pressure comes as the federal government’s interest bill has already become one of its largest expenses. Net interest payments climbed 8% to $1.05 trillion in fiscal year 2026, a pace that outstripped growth in both government revenue, which rose 3% to $5.4 trillion, and overall spending, which grew 6% to $7.4 trillion.
Interest payments on the national debt have now surpassed both defense spending and Medicaid in the federal budget, placing debt-servicing costs among the top line items the government has to fund each year.
The BofA estimate illustrates the mechanical link between Fed policy and the government's own balance sheet: every incremental rate cut eases the Treasury's borrowing costs, while a rate hike compounds an already fast-growing interest burden, adding a fiscal dimension to a debate that has largely centered on consumer borrowing costs and inflation.
With debt-servicing costs climbing faster than the economy itself, the stakes around the Fed's rate path now extend well beyond mortgage rates and credit card bills, directly shaping how much room the federal budget has for other priorities in the years ahead.
