Federal Interest Payments in the Spotlight

Jul 31, 2023 | Macro Insights, No Bull Economics

Federal Interest Payments Post Banner

While it seems like the government can presently absorb the Fed’s interest rate hikes, the problem becomes much more apparent when we factor in the CBO’s forecast for deficit spending over the next 20 years at which point net interest outlays are expected to almost triple in relation to GDP.  


  • The Fed may take solace in that its interest rate hikes appear manageable as it relates to the historical ratio of the government’s net interest payments as a % of its tax revenue receipts. This reflects that interest rates have been much higher in the past when Volcker used them to combat inflation during the eighties.
Federal Interest Payments Graph
  • However, while today’s interest rates may not suffocate the government based on current debt levels, the problem becomes apparent when considering expectations for deficit spending over the next 20 years.
  • Using the CBO’s forecast that government debt will expand from 98% of GDP to 1.81x by 2053, net interest payments start to become unmanageable, with net interest expanding from 2.5% of GDP this year to 6.7% by 2053.  
US Long-Term Budget Outlook Chart
  • It is amazing that no government leader has declared a state of emergency given CBO forecasts like this!
Defecits Percentage of GDP Graph

Source: The 2023 Long-Term Budget Outlook | Congressional Budget Office (cbo.gov)

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