Net Interest Reached $963 Billion in the First Ten Months of Fiscal 2026

by Tomas Ferreira · August 16, 2026

Markets Reporter, US Market Current

The Congressional Budget Office published its Monthly Budget Review on August 10, covering the first ten months of fiscal year 2026. The report states that it is based on the Monthly Treasury Statement for June 2026 and the Daily Treasury Statements for July 2026, which is the standard construction: nine months of settled Treasury accounting plus one month estimated from the daily cash flows. The headline that traveled was the deficit, $1.8 trillion through July, which CBO's own summary puts at $169 billion more than the same period a year earlier. The number underneath it is the one that changes how the rest of the fiscal year reads.

Outlays for net interest on the public debt came to $963 billion in October through July, against $846 billion in the same ten months of fiscal 2025. That is an increase of $117 billion, or 14 percent. In the same table, Medicare — shown net of offsetting receipts, per the table's own footnote — came to $952 billion, and Department of Defense military spending came to $763 billion. It is worth being precise about what is and is not new here: net interest did not overtake either line this year. In the prior-year column of the same table it was already ahead of Medicare, $846 billion against $820 billion, and ahead of DoD-Military, $846 billion against $719 billion. What changed in fiscal 2026 is the size of the gap, and the direction of that gap depends entirely on which column you read.

The table rewards a careful reading, because it carries five numeric columns and only one of them is the obvious one. Table 3, "Outlays, October–July," runs actual fiscal 2025, preliminary fiscal 2026, the estimated change in billions of dollars, that change with adjustments for timing shifts in outlays, and a percent change. The two change columns are not the same number for most lines, and the percent tracks the timing-adjusted change rather than the raw one. Medicare makes that visible: its raw change is $132 billion, its adjusted change is $66 billion, and the printed percent is 8 — which is $66 billion over $820 billion, not $132 billion over $820 billion. The same test passes on every line we checked. DoD-Military prints 5 percent against an adjusted change of $39 billion on a $719 billion base, not the 6 percent its raw $44 billion would give. The Department of Veterans Affairs prints 11 percent, which is its $34 billion adjusted change over $310 billion, not its $50 billion raw increase. The total prints 4 percent, which is $209 billion over $5,975 billion, not $308 billion over $5,975 billion. Read the wrong column and you will report Medicare as growing roughly twice as fast as CBO says it did.

Net interest is a line where the two change columns agree. Its raw increase is $117 billion and its timing-adjusted increase is also $117 billion — the table applies no timing adjustment to it. That matters more than it sounds. August 1, 2026 fell on a Saturday, so payments that would otherwise have gone out on the first of August landed in July instead, inflating the July month and the ten-month total for the programs affected. CBO says so directly: "Payments that otherwise would have been due on August 1, which fell on a weekend, were shifted into July." Debt service was not one of the lines the adjustment touches. The $117 billion is not a calendar artifact.

The totals need the same care. Receipts for the ten months were $4,485 billion, up $139 billion, and the timing shift does not move that column — receipts print the same $139 billion change on both the raw and adjusted basis. Outlays printed $6,283 billion against $5,975 billion, a raw increase of $308 billion that becomes $209 billion once the shifted payments are stripped out. The $6,283 billion is the unadjusted level; there is no adjusted level printed, only an adjusted change. Set the two adjusted changes against each other — receipts up $139 billion, outlays up $209 billion — and the like-for-like deterioration is about $70 billion. CBO puts the figure at $71 billion and states the result plainly: "If not for those shifts, the deficit thus far would have been $1.7 trillion, $71 billion more than the shortfall for the same period in fiscal year 2025."

Now take net interest out of it. The $117 billion increase in debt service is 56 percent of the $209 billion adjusted rise in outlays — more than half of it, from a single line. Hold that comparison to the adjusted column, because on the raw column the same $117 billion is 38 percent of a $308 billion increase, and the two readings are not interchangeable. Set the rest of the adjusted increase, about $92 billion, against $139 billion of revenue growth and the timing-adjusted deficit would have moved the other way. That is subtraction performed on two columns of the same table, not a policy counterfactual. The increase in the cost of carrying the debt is larger than the entire deterioration in the deficit it sits inside.

The Medicare comparison in particular has to be handled column by column, because the printed levels and the adjusted changes point in opposite directions. On the face of the table the gap between net interest and Medicare narrowed, from $26 billion a year ago to $11 billion now. But $66 billion of Medicare's $132 billion increase is the timing shift, and CBO's adjusted column is the one the agency computes its own percentages from. Add only the adjusted change to last year's actual and Medicare's like-for-like ten-month figure is closer to $886 billion, which would put net interest roughly $77 billion clear of it rather than $11 billion. That is our arithmetic on CBO's published columns, not a level CBO prints. Either way the ranking is the same; the trend is the opposite, and the difference is entirely a question of which column was read.

CBO gives its own explanation in one sentence, and the second half of it is new. The report says: "Outlays for net interest on the public debt rose by $117 billion (or 14 percent) because the debt was larger than it was in the first 10 months of fiscal year 2025 and because of higher long-term interest rates." Compare that with what the same publication said about fiscal 2025, when net interest on the public debt rose $79 billion, or 8 percent, to $1,028 billion: "Outlays for net interest on the public debt increased by $79 billion (or 8 percent), mostly because the debt was larger than in fiscal year 2024." One year the stock of debt did all of the explaining. This year CBO names the price alongside it.

The rate clause is worth reading literally: CBO attributes the second driver to long-term rates, not to the policy rate. The Federal Open Market Committee held the target range for the federal funds rate at 3-1/2 to 3-3/4 percent on July 29, and did so over three dissents — Beth M. Hammack, Neel Kashkari and Lorie K. Logan each preferred a quarter-point increase — with the statement noting that "Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy." Whatever the front end does, the input CBO identified in its own sentence sits further out the curve.

For a sense of full-year scale, the previous year's proportions are the cleanest guide available. In fiscal 2025 the ten-month figure of $846 billion became a full-year figure of $1,028 billion, so the October-July window carried about 82 percent of the year's interest cost and the final two months carried $182 billion. Apply that same proportion to this year's $963 billion and fiscal 2026 lands somewhere around $1.17 trillion. That is our arithmetic on two published CBO numbers and not a CBO projection; the last two months of any fiscal year can break the pattern, and this is a scale check rather than a forecast.

There is a trap waiting for anyone who reaches for CBO's baseline to do that check instead. The February 2026 Budget and Economic Outlook projects "net interest" of $1,039 billion for fiscal 2026, 3.3 percent of GDP, within a projected deficit of $1,853 billion and total outlays of $7,449 billion. That line is not the same line as the Monthly Budget Review's "net interest on the public debt," and the documents demonstrate it themselves: the February outlook records actual fiscal 2025 net interest at $970 billion, while the Monthly Budget Review's fiscal 2025 summary records net interest on the public debt at $1,028 billion. Same agency, same completed year, $58 billion apart, because the two labels cover different measures. A ten-month figure from one publication cannot be run against a full-year projection from the other.

The revenue side of the same report is worth holding next to the interest line, because it explains why the deficit did not widen further. Individual income taxes rose $161 billion, to $2,365 billion, and payroll taxes rose $41 billion, to $1,521 billion; on CBO's combined memorandum line the two grew $202 billion together, to $3,887 billion. Customs duties, the line that carries tariff collections, rose $18 billion to $154 billion, an increase CBO says was "driven by changes in tariff rates as a result of executive action." Working the other way, corporate income tax receipts fell $89 billion, or 23 percent, to $298 billion. The corporate decline alone is roughly five times the increase in customs duties.

Two more outlay lines are large enough to distort a casual scan of the totals, and one of them is not what it looks like. Department of Education outlays fell $79 billion, to $52 billion, a 60 percent drop, and Environmental Protection Agency outlays fell $20 billion, to $14 billion. Together those two declines are $99 billion, which offsets most — roughly five-sixths — of the $117 billion interest increase inside the total. But CBO's own explanation of the Education line is an accounting revision rather than a spending cut: outlays fell "largely because in June 2026 the department recorded a net reduction of $53 billion in the estimated costs of outstanding student loans; a $24 billion increase was recorded in July 2025." Anyone reading only the $209 billion adjusted rise in outlays and concluding that spending grew modestly is netting a 14 percent increase in debt service against two agency lines that shrank by more than half, one of them on a credit-subsidy reestimate.

The next data point on this series is the September Monthly Budget Review, which will fold in the settled Treasury statement for July and estimate August. Two things are worth checking in it rather than assuming. First, whether the August month reverses the July timing shift, which is what the mechanism implies — payments pulled into July come out of August, and the adjusted columns will again be the ones to read. Second, whether CBO keeps the rate clause in its net interest sentence or reverts to the debt-size explanation it used through fiscal 2025. That single sentence is the agency saying which of the two inputs it thinks is driving the number, and this year it changed.