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US Interest Spending and Debt Could Increase Drastically With New Interest Rate

On the sixteenth of March, the Federal Reserve Bank lifted its key interest rate from 1.50%, to 1.75%. This is the highest it’s been since 2008. It was the first major decision under the new Chairman Jerome Powell, and was made because of the continued growth and strengthening of the US economy. However, there’s one major concern regarding this decision: the interest spending and the size of the debt of the US. As shown in the graph, made by the Committee for a Responsible Federal Budget (CRFB), they estimate that interest costs will total $6.8 trillion over a decade and $965 billion in 2028. With just 1 percentage point annual increase in interest rates above CBO’s projection, this number would increase interest costs by $2 trillion (to $8.8 trillion) over a decade and by $325 billion (to $1.3 trillion) in 2028. Scenarios with an even higher percentage point increase are also shown. Moreover, the CRFB estimates that with the new key interest rate, the debt (to GDP) will grow to 101%, and would be at 107% with an increase of the key interest rate of 1%. (source)

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