Fed Sounding the Alarm on $38.5 Trillion Debt Crisis as Interest Costs Spiral

Federal Reserve Chair Jerome Powell is sounding the alarm about America’s mounting fiscal crisis. The U.S. national debt has reached $38.5 trillion, and Powell has made it unmistakably clear: the country is locked into an unsustainable trajectory. As we move through early 2026, the warning carries new urgency—this isn’t theoretical anymore; it’s immediate reality.

The Debt Acceleration Trap

Consider the raw numbers. The U.S. government is hemorrhaging roughly $8 billion in new debt daily. To put that in perspective, this adds nearly $3 trillion per year to the national tab. The problem compounds itself: as debt grows faster than GDP, the economy becomes increasingly vulnerable to external shocks. A recession, geopolitical crisis, or spike in inflation could trigger cascading effects that are difficult to control.

Powell’s core concern centers on one simple fact—the debt is growing faster than the economy that’s supposed to service it. This creates a dangerous math where obligations eventually outpace the capacity to manage them. The Federal Reserve doesn’t control the checkbook; Congress does. But the Fed must navigate the consequences.

Why Interest Payments Have Become the Budget’s Biggest Line Item

Here’s where the fiscal picture becomes truly alarming. Annual interest payments are now projected to exceed $1 trillion in 2026—surpassing the entire U.S. defense budget. This represents a fundamental shift in government spending priorities. Every dollar spent on interest is a dollar unavailable for infrastructure, research, or social programs.

This interest trap accelerates the unsustainable cycle. As debt grows, interest obligations climb. As interest climbs, the government must borrow more to cover basic operations. The mathematics are merciless. Powell has stated plainly: “We are borrowing from future generations… we’re on an unsustainable fiscal path, and that’s just a statement of fact.”

Powell’s Final Push: The Sustainability Question

With Powell’s term ending in May 2026, his final warnings about fiscal sustainability take on heightened significance. The incoming Federal Reserve Chair will inherit an economy where debt service has become one of the largest budget items. The Fed controls monetary policy and interest rates, but the fundamental fiscal problem requires Congressional action—action that has proven politically elusive.

The challenge ahead is unprecedented: how does a central bank manage economic stability when structural debt problems threaten the entire fiscal framework? Powell is sounding the gong before his departure, leaving clear documentation that the problem is neither ambiguous nor manageable through monetary policy alone.