CBO projects interest rates on debt to triple by 2024

SOURCE: cbo.gov

Interest rates on the national debt is expected to triple by 2024 and will cost $5.8 trillion over the next decade, according to the non-partisan Congressional Budget Office.

The “mounting” interest payments was one of four factors accelerating future deficits cited by CBO Director Douglas Elmendorf, who testified before the Senate Budget Committee last week.

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“Net interest payments by the federal government are…projected to grow rapidly, primarily because interest rates are most likely to return to more typical levels,” said Elmendorf.

According to the CBO’s 2014-2024 budget and economic outlook, interest rates for 3-month Treasury bills is estimated to tick up to 0.4% in 2014, 1.8% in 2016, and 3.3% in 2017. The projected average is 3.7% between 2018-2024. Interest rates on 10-year treasury notes will grow to 3.1% in 2014, 3.7% in 2015, 4.3% in 2016, 4.8% in 2017, and the projected average by 2024 is 5.0%.

CBO calculated that interest payments on the debt will rise to $233 billion this year and more than double to $493 billion in 2018. The net interest payment is expected to hit $880 billion in 2024, and the total interest paid for the debt over the decade is projected to be $5.8 trillion.

To put those figures into perspective, interest on the debt accounts for 1.3% of the U.S. economy or GDP [gross domestic product]. It will grow to 3.3% of the GDP by 2024 when interest rates – currently at their historical lows – return to “more typical levels.”

Elmendorf noted that if interest rates were to rise 1% higher throughout the decade, then that would add $1.5 trillion to the federal deficit given the size of the national debt.

Sen. Pete Session (R-Alabama) pointed out that as the debt service costs increase, that would squeeze out funds for federal programs and services.

“Where does this money come from? That’s the question I think the American people need to think to ask. It’s going to come out of programs that people from both parties believe in, want to support, want to see growth, and they’re not going to be able to grow because we’re going to have this huge increase in interest – the largest and fastest increase in part of our budget,” said Session.

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