Long term U.S. interest rates have climbed to their highest levels in years, yet Washington doesn't seem too concerned. Government spending continues to rise, and there is still little discussion about fixing long-term issues like Social Security and Medicare.

Source: U.S. Department of the Treasury. Fiscal Service, Federal Debt: Total Public Debt [GFDEBTN], retrieved from FRED, Federal Reserve Bank of St. Louis; https:// fred.stlouisfed.org/series/GFDEBTN, August 6, 2026

At first glance, that sounds alarming. But there is an important point that often gets missed.

Think of the U.S. economy like a household. As long as your income is growing faster than the interest on your debt, you can usually manage your finances. The same applies to governments. Right now, the U.S. economy is still expected to grow slightly faster than the average interest rate it pays on its debt. That means the debt is becoming more expensive, but it isn't yet at a level that forces difficult decisions.

According to a recent Evercore report, interest rates would likely need to rise much further before they truly put pressure on Washington to change course. In other words, despite all the headlines about rising debt and higher bond yields, we're probably still in a "muddle through" phase rather than facing an immediate fiscal crisis.

That doesn't mean there aren't challenges ahead. Social Security and Medicare are expected to face funding pressures in the early 2030s, and that may be the event that finally forces meaningful fiscal reform. Until then, markets are likely to focus more on economic growth, corporate earnings, and inflation than on government debt alone.

Headlines about government debt can sound dramatic, but context matters. The debt is a long-term issue, not necessarily a short-term market problem. As investors, it's important to separate today's headlines from what is likely to drive markets over the next few years.

I have also included a link to the latest podcast from our CIBC Economics team entitled “What to make of Canada’s export rebound”.

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan