Rising interest rates have caused the 10-year U.S. Treasury rate to bump up against 5% for the first time in 15 years. This has significant implications for the federal budget.
Why it matters: Interest costs on the national debt could reach a record share of the economy within three years, making it the second-largest federal spending item, more than defense spending or Medicare.
By the numbers: The Committee for a Responsible Federal Budget lays out the details: Interest costs could total more than $13 trillion over the next decade and $1.9 trillion per year by 2033.Most long-term forecasts suggest the economy is likely to grow by 3.5% to 4% per year over the long term. This is below the interest rate on new bonds, meaning existing debt may grow faster than the economy.
Bottom line: Interest payments on our debt, along with rising costs to retirement and healthcare programs, are pushing America’s fiscal outlook into uncharted territory. Congress must prioritize efforts to reform our entitlement programs, the major driver of our debt and deficits.
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