The National Debt, Mortgage Rates, and Inflation
by REI INK
As of June 2026, U.S. national debt stands at $39.2 trillion according to Treasury data. That figure is growing by eye-watering sums: For the first eight months of fiscal year 2026, the Congressional Budget Office (CBO) reports that the federal budget deficit has totaled $1.2 trillion. The CBO also broke down the government’s incomings versus its outgoings. For the first eight months of the fiscal year (which ends in September), the government raked in $3.66 trillion but spent $4.9 trillion.
The CBO further reported that between October and May 2026, the government spent $742 billion servicing the debt burden, an increase on the $674 billion spent in the same period last year. The 10% increase, the CBO explained, is “because the debt was larger than it was in the first eight months of fiscal year 2025 and because of higher long-term interest rates. Declines in short-term rates partially mitigated the overall rise in interest payments.”
According to Fortune, debt hawks are continuing to push for fiscal responsibility. The Committee for a Responsible Federal Budget is urging lawmakers to keep deficit reduction in mind as discussions over advancing a third budget reconciliation bill in Congress progress.
The committee is calling for savings of at least $600 billion, adding: “The last two reconciliation bills are projected to add nearly $5 trillion to the debt through 2035. The upcoming budget resolution should instead facilitate the passage of legislation to reduce deficits, as reconciliation is intended to do.”
Debt to GDP Ratio
The US hit a milestone this year. The size of the national debt eclipsed annual economic output. The ratio of debt to GDP is over 100 per cent for the first time since 1946, when the US had been borrowing to finance military spending during the Second World War.
In a June 4, 2026, article published in The Center Square, the United States has about 20 years to change course on its national debt before it reaches the estimated limits of its debt capacity, according to new research from the Penn Wharton Budget Model. Penn Wharton researchers estimate that under current trends, policymakers have about two decades to implement fiscal changes before the available options become significantly more costly and potentially insufficient to stabilize the nation’s finances.
However, Kent Smetters, the Penn Wharton Budget Model’s faculty director and the report’s lead author, said the risk of an earlier crisis is real but impossible to time precisely.
“As soon as capital markets start believing that Congress will never get its act together, things unravel immediately,” Smetters said. “It’s no different than a bank run problem: a solvent bank can become insolvent simply because people believe it is insolvent.”
Researchers estimate the outer limit of U.S. debt capacity at about 210% of gross domestic product. At that point, even a 100% tax on labor income would not generate enough revenue to cover interest costs, making the debt impossible to stabilize through labor-tax increases alone.
Financial challenges could emerge before the government reaches the model’s theoretical ceiling.
Darrell Duffie, a Stanford finance professor who studies the Treasury market, said investor confidence could erode before debt reaches its estimated maximum. He noted that foreign central banks and other reliable buyers are unlikely to absorb much more U.S. debt, leaving a growing share in the hands of discretionary investors such as hedge funds and mutual funds whose appetite for Treasuries is less predictable. “The vulnerability of market functioning to the increasing quantity of Treasuries held by discretionary investors just keeps growing with the total supply of Treasuries,” Duffie explained.
The Trump administration has downplayed the ballooning debt since taking office, often saying that the debt-to-GDP ratio will drop as President Trump’s policies accelerate US economic growth.
The president regularly talks of a goal of 4% annual economic growth and sometimes far higher, but new data suggests a lower growth rate is likely, at least for now.
Mortgage Rates Top 6.5% as Inflation Spikes
According to the Primary Mortgage Market Survey, the 30-year fixed-rate mortgage averaged 6.52% as of June 11, 2026, up from the previous week when it averaged 6.48%. A year ago at this time, the 30-year FRM averaged 6.84%.
The 15-year fixed-rate mortgage averaged 5.84%, up from the previous week when it averaged 5.79%. A year ago at this time, the 15-year FRM averaged 5.97%.
Primary Mortgage Market Survey results are based on the mortgage rate collected from thousands of loan applications submitted to Freddie Mac through Loan Product Advisor from lenders across the country when a borrower applies for a mortgage.
The war in Iran has put pressure on energy prices, which are, in turn, driving up consumer prices. According to the Labor Department, energy costs pushed May’s consumer price index up 4.2% from a year ago, the highest level of inflation in three years, and well above the Federal Reserve’s 2% target. According to a report from CNBC, much of the inflation surge came from a 3.9% jump in energy prices, putting the 12-month increase at 23.5%.
“Americans are getting squeezed financially by inflation that’s back at a 3-year high,” said Heather Long, chief economist at Navy Federal Credit Union. “The frustration for many Americans is that so many of the basics are up in price right now — gas, food, electricity, and medical care are all clear pain points that are above 3% inflation. Ending the war in Iran will help to moderate inflation, but the worst is likely still to come for rising food prices.” (Note: As of this writing, a Memorandum of Understanding (MOU) to begin a 60-day negotiation period to end the Iran conflict will be signed in the next few days. If signed, energy prices may be positively impacted and influence the CPI).
“Markets seem to be coming to terms with the idea that we may not see the long-expected Fed rate cut in 2026, even with a new Fed chairman,” says Dr. Sean Salter, associate professor of finance at Middle Tennessee State University.
While the Federal Reserve doesn’t directly control mortgage rates, it does set the overall tone. Mortgage rates generally move with 10-year Treasury yields, and inflation is causing those to stay higher.
