The risk of inflation is built into the interest rate.
The only inflation adjusting fixed rate instrument that I know of are TIPS. And even they may not have an accurate peg, as Bureau of Labor and Statistics inflation figures have a large subjective component.
Large shifts in inflation rates almost always cause significant re-pricing in bond and securities markets. That re-pricing is an inherent acknowledgement by the market of a mis-pricing of inflation. It is not without cost to the economy. Richard Nixon and Jimmy Carter could tell us a lot about that.
The re-pricing of bonds (which is what drives interests rates when you get down to it)
is the market baking inflation risk into interest rates. If I think prices are going to rise significantly over the term that I'm lending to someone, I'm going to demand a higher rate. Just as I'm going to demand a higher rate if I believe the debtor is more likely to default. But risk is called risk because the outcome is uncertain. The market may believe inflation will go up, and it doesn't, or vice versa. The important thing is that funds move, business has capital and can hire people, and people can buy homes. The important thing is that abstract money can feed concrete economic activity.
The United States government has no power to directly induce inflation and weasel out of debt; monetary policy is insulated from politics.
Yet here we are today, with an independent Fed keeping interest rates at emergency level for nearly an entire two term Presidency. The insulation is paper thin. Don't get me wrong, that's not an accusation against Yellen. She's not corrupt, she's merely human. It's just natural confirmation bias that all humans are prone to make. An independent Fed can easily make the same human mistakes any politician can.
It is not a mistake (IMO) to keep rates low when there is little sign of inflation and funds are not flowing significantly to fuel economic growth. It may be a mistake to keep rates low for other reasons - because it punishes people living on fixed-payment instruments, and because of the massive hangover that will happen when the Fed finally takes the punchbowl away and stocks crash as a result. (If I can get a larger return on bonds, I'm going to demand an even larger return on stocks, which drives down price.)
And it's easy to see how a Fed chair will be subject to confirmation bias style mistakes in the future, as they surely will understand that raising interest rates will blow a big hole in debt service portion of the budget.
The government will have to pay a higher rate on new issues (treasuries will sell for a lower price at auction) but on debt already issued, the rate will remain the same. Hopefully that leads to more responsible fiscal policy - I believe the cost of debt is built into the budget and the resulting deficit projections will become a matter of political import. lol. No, really. But at the very least, the cost of
revolving debt will have political consequences.
The upshot of all of this is that deficit is certainly critical, but the debt itself is simply a way for the government to leverage its massive power to collect revenue.
You may also recall that Nixon did not re-nominate William Martin in 1970 and installed Arthur Burns as Fed Chair, who was a strong believer in easy monetary policies. Those policies persisted on into Carter's term. Paul Volcker was heavily and widely criticized in 79-81 when he decided to take the fed funds rate to 20%. Everyone praises him now in hindsight. But his actions were highly controversial at the time. Burns and Bill Miller (Carter's 1978 nominee) were smart men, not corrupt, yet they failed to see the correct course of action that only Volcker finally took to tame inflation.
Inflation is a complicated beast. The end of Breton Woods certainly shocked confidence in currency. We also had productivity issues, in which the value of goods and services in the economy did not keep up with the funds available to pay for them. Easy money went into pockets, but didn't lead to more wealth. Today we have the opposite. Easy money stays in cash reserves of financial institutions still shocked by the 2009 crisis, and not in the pockets of consumers. Meanwhile we have a boom in productivity. The "jobless recovery." Lots of stuff to buy, not enough increase in available money to pay for it. This is why Yellen takes a look at inflation, says "nope, still not enough," and keeps rates low.