Affordability has become one of the defining concerns for American families. Over the past few years, people have been squeezed by two major forces: high inflation and rising interest rates. Inflation surged to 9% in 2022 and was above 5% from May 2021 to March 2023. Even though inflation has eased to around 3%, prices remain elevated, and inflation is still above the Federal Reserve’s target of 2%.
At the same time, interest rates have climbed after years of historic lows. The 10‑year Treasury yield (the annual percentage return an investor earns on government debt), a major driver of mortgage and car loan rates, jumped from 2% in early 2022 to over 4% for much of 2025. Higher rates translate directly into higher monthly mortgage payments and car payments. While many factors influence inflation and interest rates, one major—and often overlooked—driver is the federal government’s large annual deficits and rapidly growing national debt. These fiscal pressures are playing a real role in the affordability challenges families feel today.
How Large Deficits Push Inflation Higher
The link between deficits and inflation is straightforward. When the government spends more than it collects, it runs a deficit. That deficit spending adds to “aggregate demand”—the total amount of spending in the economy. When demand rises faster than supply can adjust, prices go up.
Economic research backs this up. Studies examining the effect of a permanent primary deficit increase equal to 1% of GDP over five years find that it raises inflation by roughly 0.25 to 0.80 percentage points. For a typical household, that translates to $400 to $1,200 in lost purchasing power each year. While these numbers may seem modest, they compound the affordability pressures created by higher interest rates—pressures that are themselves influenced by rising federal debt.
How the Growing National Debt Raises Interest Costs
Housing and transportation are two of the biggest expenses for American families. In early 2024, a typical mortgage payment on a median‑priced home consumed 38% of the average family’s income. New car payments took up another 12%.
Both costs depend heavily on interest rates. Mortgage rates, in particular, move closely with the yield on the 10‑year U.S. Treasury note. When the federal government borrows heavily to finance large deficits, it issues more Treasury securities. The increased supply of government debt means the government competes with households and businesses for available monetary resources. Investors then demand higher returns on their investment because there is so much demand for their monetary resources, pushing interest rates up across the economy.
Between 2019 and 2025, the national debt held by the public rose from 79% to 99% of GDP. That increase alone is estimated to have raised long‑term interest rates by about 0.8 percentage points. On a $400,000 mortgage, that means roughly $2,400 more per year in payments. Debt is projected to rise another 20 percentage points of GDP over the next decade, which would further erode housing affordability.
Recent housing data underscores the impact. According to an analysis in The Economist, the share of Americans who can afford a new home has fallen from above 50% in 2019 to below 25% in 2025—driven in part by higher interest rates linked to rising deficits and debt.
Car loans show a similar pattern. From December 2021 to December 2023, as the 10‑year Treasury yield rose from 1.5% to 3.9%, average new‑car financing rates climbed from 4.4% to 7.0%.
Conclusion: Fiscal Responsibility Is an Affordability Issue
America’s affordability crisis is not just about inflation or interest rates in isolation. It is also about the fiscal choices that shape both. Large deficits add fuel to inflation, while a growing national debt pushes interest rates higher—raising the cost of buying a home, and financing a car. These pressures fall hardest on younger families and first‑time homebuyers who are trying to build financial security.
If policymakers want to make life more affordable, they cannot ignore the role of federal borrowing. Addressing the drivers of long‑term deficits is not only a matter of fiscal responsibility—it is essential to restoring economic stability and expanding opportunity for the next generation.
