Over the past two years, the US Federal Reserve has raised interest rates in an effort to combat inflation. This decision has resulted in bond investors making a significant amount of money, but it has also led to the government spending more on paying interest on public debt. Currently, the US government is spending around 34,000 billion USD on interest payments.
In March, the US Treasury paid 89 billion USD in bond interest, which amounted to approximately 2 million USD per minute. According to Bloomberg statistics, this number is expected to increase in the near future as the government continues to spend and the Fed hesitates to lower interest rates. The St. Louis Federal Reserve Bank predicts that government’s interest payments could exceed $1,000 billion this year, nearly double the amount before the Fed started its rate hike in 2022.
The yield on 10-year US government bonds is currently around 4.5%, providing investors with a stable and nearly risk-free source of income. This has led to an increase in assets of funds that invest in short-term securities like US government bonds. However, some analysts believe that high interest rates may be contributing to inflation by making consumption more attractive with stable and higher income from bonds.
There is a debate among experts about the impact of high interest rates on inflation, with some suggesting that lowering interest rates could help cool down prices. However, others argue that a reduction in house prices would be necessary for inflation to significantly decrease, requiring a decrease in interest rates by the Fed.
Overall, the relationship between interest rates, inflation, and consumption remains complex and continues to be a topic of discussion among financial experts and policymakers.
In recent years, rising interest rates have caused an increase in public debt spending due to increased demand for bond issuance from investors looking for risk-free investments. The current level of public debt stands at around $34 trillion USD and continues to grow as more bonds are issued each year.
According to data from Bloomberg’s Bond Pulse report, in March alone, the US Treasury paid over $89 billion USD worth of bond
