Debt and Interest Rates
Will Gottsegen at The Atlantic: Why are rates rising? The Fed’s reaction to inflation is one reason. It may also have something to do with the extreme investments being made in AI, and these companies’ demand for credit. And it’s likely connected to the deficit panic—concern about the expansion of the national debt and the government’s ability to sustain it. Investors are starting to think of long-term Treasurys as riskier than they once did, and they’re demanding more money in exchange for taking on America’s debt. At the same time, the federal government has shown no real appetite to pull its two main levers for reducing the debt: cutting spending and raising taxes.
Jared Bernstein, the former head of Joe Biden’s Council of Economic Advisers, wrote in The Atlantic a few months ago that he’d “flipped from dove to hawk”—and told me this week that it was partly the government’s complacency on this issue that spurred this change. “Neither side seems particularly motivated to do much of anything about this,” he said. Rather than attending to the debt problem, politicians of both parties have instituted major tax cuts and increased spending over the past 25 years. The U.S. had its credit downgraded by a major ratings agency last spring, in part because of rising debt. The One Big Beautiful Bill Act will add an estimated $4.7 trillion to the deficit through 2035, and Donald Trump’s efforts to decrease immigration will add another half a trillion to that number over the same period, per the Congressional Budget Office.
