FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 17 August 2016

Government's Net Interest Costs Are Projected To More Than Double Over The Next Decade

from the Congressional Budget Office

The government's net interest costs are projected to more than double as a share of the economy over the next decade - from 1.4 percent of GDP in 2016 to 3.0 percent by 2026. By 2046, if current laws governing taxes and spending generally did not change, those costs would reach 5.8 percent of GDP - increasing from 6 percent of federal spending to 21 percent over the next 30 years.

The Shifting Composition of Federal Spending

Net interest costs are projected to increase as interest rates rise from unusually low levels and as greater federal borrowing directly leads to greater debt-service costs. In addition, greater federal borrowing is projected to put further upward pressure on interest rates and thus on interest costs. Growth in net interest costs and growth in debt reinforce each other: Rising interest costs push up deficits and debt, and rising debt pushes up interest costs.

CBO projects that interest rates will rise from today's low rates as the economy grows but that they still will be lower than they have been, on average, during the past few decades. Over the long term, interest rates are projected to rise to levels consistent with factors such as labor force growth, productivity growth, the demand for investment, and federal deficits. According to CBO's projections, factors that push interest rates down from their historical levels - such as slower growth of the labor force - would outweigh factors that push interest rates up from their historical levels - such as rising federal debt. For example, in CBO's latest 10-year economic projections, the interest rate on 10-year Treasury notes rises from 2.2 percent at the end of 2015 to 4.1 percent in 2026. In CBO's long-term projections, the rate on those notes rises to 4.7 percent in 2046 - still below the average of 5.8 percent between 1990 and 2007. (CBO uses the 1990 - 2007 period for comparison because it featured stable expectations for inflation and no significant financial crises or severe economic downturns.)

Interest Rate on 10-Year Treasury Notes

The average interest rate on all federal debt held by the public tends to be lower than the rate on 10-year Treasury notes. (In general, interest rates are lower on shorter-term debt than on longer-term debt; since the 1950s, the average maturity of federal debt has been shorter than 10 years.) On the basis of the agency's projected spreads of interest rates and the term structure of federal debt, beyond 2026, CBO anticipates that the average interest rate on federal debt will be about 0.4 percentage points lower than the interest rate on 10-year Treasury notes. As a result, CBO projects that the rate will rise to 4.4 percent in 2046.

Rising rates will add significantly to interest costs and thus increase federal debt (as a share of the economy). Although interest rates are projected to remain notably below their average in recent decades, anticipated increases in rates account for roughly three-quarters of the projected increase in debt as a percentage of GDP by 2046. A growing gap between revenues and noninterest spending - which is projected to rise from about 1.5 percent of GDP in 2016 to 3.0 percent of GDP in 2046 - accounts for the rest.

About the Authors

Stephanie Barello and Michael Simpson are analysts in the Long-Term Analysis Unit at CBO.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Comments on Feyerabend’s ‘Against Method’, Part III
Taking a Wrench to Healthcare
News Blog
Average Gasoline Prices for Week Ending 24 October 2016 Now Higher Than One Year Ago
Earnings And Economic Reports: Week Starting 24 October 2016
New Findings: Anxiety Is Linked To Death From Cancer In Men
Nearly 1 In 6 European Adults Is Considered Obese
Acupuncture Is Useless
September 2016 CFNAI Super Index Moving Average Declines
Consequences Of Rising Income Inequality
America's Most Competitive Renters: Why Many Are Choosing To Rent
Historical Echoes: The Bank Teller Action Figure, Or It's All In The Packaging
Infographic Of The Day: The Oil Market Is Bigger Than All Metal Markets Combined
U.S. 2016 Election Divides Advanced And Emerging Economies
Which Countries Read The Most
The World's Most Expensive Retail Locations
Investing Blog
The Week Ahead: How Long For This Trading Range?
What ATT Gets For $85 Billion
Opinion Blog
What Triggers Collapse?
The Beer Goggles Stock Market
Precious Metals Blog
Preparing For Post-Election Social Unrest
Live Markets
24Oct2016 Market Close: Wall Street Closes Higher, Quietly On Low Volume, Crude Back Up, US Dollar Trading At Resistance, Investors Remain Skeptical On Continuing Bullish Market
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved