This week saw another Federal Reserve rate hike, which did not have much of an impact on Treasury yields. If anything, the rate hike could have contributed to the stabilization of yields in the secondary market; there is not enough data yet to assess its impact on auction yields. However, the stabilization of market yields indicates that investors are satisfied with the current rates of return. Given the overall safety of owning U.S. government debt, this should be reassuring in terms of funding the debt—at least for now.
Despite the tentatively good news that interest rates may have reached their peak, the increase in the debt itself continues. In one day, on November 1, the Treasury auctions added $1.7 billion to the cost of the federal debt.
This increase, while discrete in nature, is never the less symptomatic of a trend where cheap debt is being replaced with expensive debt. This is part of the reason why, on November 1, we published a dire prediction of the federal debt cost for this fiscal year. One part of the forecast is static, the other dynamic. According to the dynamic forecast, the cost of maintaining the debt will exceed the predicted cost of our national defense for FY2023. Interest payments on the debt will be within the margin of error of exceeding the total Medicare budget for the same fiscal year.
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We do not give investment advice.
This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.
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