The U.S. economy has defied all recession fears over the past year, continuing to grow at a robust pace despite higher interest rates and record consumer debt.

But as it turns out, that growth didn't come for free.

According to the International Monetary Fund (IMF), the U.S. economy’s strong performance is being driven in part by a ballooning national debt, which isn’t sustainable in the long run.

“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth,” the IMF said in its World Economic Outlook report.

“But it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability.”

The dangers of government overspending probably won’t materialize in the short term. The IMF forecasts the economy will further grow this year before cooling in 2025.

But if Washington doesn’t control its spending addiction soon, the IMF thinks it can reignite inflation and weaken the country’s long-term financial stability.

“Something will have to give,” the IMF said.

Unfortunately, fiscal restraint seems to be the last thing on policymakers' agenda.

President Biden’s first three years in office alone added more than $2 trillion in new spending commitments, and more could be on the way ahead of the November elections.

$1 trillion every 100 days

The national deficit has been growing consistently since the 2000s, but things really went off the rails during Covid. Since 2023, the national debt has grown by $1 trillion roughly every 100 days and currently sits at $34.6 trillion.

According to Bank of America investment strategist Michael Hartnett, the 100-day growth rate will remain intact until the national debt hits $35 trillion.

The national debt poses a greater risk to the federal budget now more than ever due to higher interest rates.

For the first time, the cost of servicing the debt exceeded $1 trillion last year and is set to grow to $1.1 trillion over the coming decade, according to the Congressional Budget Office.

For perspective, that's more than the current annual defense spending.

In light of this, Moody's lowered its outlook on the U.S. credit rating from “stable” to “negative” last October.

“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability,” the credit rating agency said.

Making matters worse, the Fed is getting cold feet on interest rate cuts, which means debt servicing costs aren't expected to come down anytime soon.

All eyes on the Fed

Last December, the Fed telegraphed three interest rate cuts for 2024 so long as inflation continued to moderate.

Surprisingly, Fed Chair Jerome Powell doubled down on the possibility of three rate cuts last month despite evidence that inflation was picking up steam again.

The tone seems to have changed since last week’s CPI report, which showed annual inflation reaching 3.5% in March.

According to The Wall Street Journal, Powell recently dialed back expectations of three rate cuts during a moderated Q&A session in Washington.

“The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Powell said.

Elevated interest rates mean the government isn’t just running a permanently bigger deficit, but the cost to service all that borrowing will remain painfully high.

As the Journal noted, the Treasury Department increased its bond issuance to a record $23 trillion in 2023.

At these levels, interest payments on the national debt are expected to reach 3.1% of GDP this year, nearly double the annual average since 2000.