Long-term interest rates have climbed to levels that leave the federal government’s own budget forecasters looking badly out of step with reality. The 10-year Treasury note has risen to 5 percent, according to an analysis flagged by The Federalist, a rate that already surpasses the Congressional Budget Office’s assumptions for every single year through 2036.
CBO’s February Budget and Economic Outlook projected the 10-year rate would average 4.1 percent in fiscal year 2026, which ends September 30, followed by 4.2 percent in 2027, 4.3 percent from 2028 through 2031, and 4.4 percent from 2032 through the end of the projection window in 2036. Market rates have instead blown past all of those figures well ahead of schedule.
That gap matters enormously for a federal budget already running deep in the red. Interest rates sustained above CBO’s baseline could tack trillions of dollars in additional debt onto an outlook that was already described as bleak.
Interest Costs on Track to Rival Entitlements
The Center for a Responsible Federal Budget has warned that if rates remain elevated at current levels, Washington will within a decade be spending more on interest to finance the debt than it does on Medicare or on Social Security retirement benefits. That would represent a landmark shift in the composition of federal spending — one in which servicing past borrowing crowds out the programs that dominate the budget debate.
Rising rates carry a more immediate bite as well. Higher long-term borrowing costs translate into pricier mortgages, adding pressure on households already straining under elevated prices. The same dynamic that raises costs for families also raises costs for the Treasury, which must refinance maturing debt at the new, higher rates.
The climb in rates has multiple drivers. The Federalist piece points to persistent inflation concerns and to the enormous capital demands of the data center and artificial intelligence buildout, which has absorbed so much money in the economy that borrowing costs have risen across the board. But the source also argues the increase reflects something more fundamental: growing doubt that the federal government can manage its rapidly expanding debt load, even as that load becomes more expensive to carry.
A Convert Raises the Alarm
What has given the debate additional voltage is that the warnings are no longer coming only from longtime deficit hawks. Jared Bernstein, who chaired the Council of Economic Advisers under President Biden, wrote a New York Times op-ed raising the prospect of a fiscal crisis. The piece’s headline acknowledged that Bernstein has “never been a budget hawk” — a characterization the source material calls accurate.
Bernstein’s concern, as described, centers on the gap between deficits and economic conditions. He wrote that annual deficits, currently around 6 percent of GDP, are far above what history suggests is appropriate, noting that the country is not in a recession yet is borrowing as though it were. He also observed that politically, neither party shows any interest in addressing the problem.
The Federalist’s commentary notes the irony that the administration Bernstein most recently served helped create the debt and deficit problems he now criticizes, and that Biden’s Build Back Better legislation would have worsened the picture had it become law. But the piece concedes that this history does not make Bernstein wrong about the need to put the nation’s fiscal house in order.
The Math Behind the Warning
The deeper long-term risk, according to CRFB, is the possibility of a genuine fiscal crisis. The mechanism is straightforward: when interest rates exceed the economy’s growth rate, the nation’s capacity to grow its way out of its fiscal hole declines sharply. Continued borrowing at elevated rates accelerates the arrival of that reckoning.
This is where Stein’s Law comes in. Named for economist Herbert Stein — father of policy adviser and actor Ben Stein — the maxim holds that if something cannot go on forever, it will stop, sooner or later. Rising rates, in this reading, are the mechanism by which the law enforces itself on a government that has shown little appetite for self-correction.
Acting to address the deficits presupposes that anyone in Washington has the political will to make difficult choices. The source argues that politicians lack that spine in part because the American public itself wants to have its fiscal cake and eat it too — demanding both low taxes and generous benefits without confronting the arithmetic that connects them.
‘Good Bad News’?
That dynamic leads to a counterintuitive conclusion. If only a financial crisis will force the country — its elected officials and its voters alike — to get serious about its fiscal future, then the recent groaning in the bond market might be characterized as good bad news. The argument runs that it would be better to confront the crisis with federal debt at $40 trillion than at some even higher figure.
Whether that reckoning arrives through a disorderly crisis or through gradual adjustment, the projection embedded in Stein’s Law is the same: the current trajectory does not continue indefinitely. What remains undetermined is the timing, and how painful the stop will be when it comes.
The immediate signal is already visible in the bond market. A 10-year Treasury yield of 5 percent sits well above every year of CBO’s decade-long forecast, and each week it holds there adds to the cost of a debt pile that both parties, so far, have shown little willingness to restrain.
Source: thefederalist.com — https://thefederalist.com/2026/09/25/rising-interest-rates-push-washington-toward-another-fiscal-crisis/