US debt crisis: Interest costs hit $3 billion a day

And that includes Saturday and Sunday, he said. indicated in a note on Tuesday.

Daily interest costs have doubled since 2020, up from $2 trillion about two years ago, when the Federal Reserve began an aggressive rate-hike campaign to curb inflation.

In the process, that makes it more expensive to repay US debt because Treasury bonds pay higher interest rates. But with the Fed now set to start cutting interest rates later this month, the opposite could happen.

“If the Fed cuts rates by 1% and the entire yield curve falls by 1%, the daily interest cost would drop from $3 billion per day to $2.5 billion per day,” Sløk estimates.

Apollo

Meanwhile, the federal government ends its fiscal year at the end of this month and the interest costs on the U.S. debt are now at $1 trillion many months ago.

But even if the Fed’s rate cuts reduce the burden of interest payments, the next president is still expected to exacerbate budget deficits, adding to total debt and offsetting some of the benefits of lower rates.

In fact, a recent analysis from the Penn Wharton Budget Model found that Deficit would increase under Donald Trump or Kamala Harris.

But there is a big difference between the two.

Under Trump’s tax and spending proposals, the primary deficit would increase by $5.8 trillion over the next 10 years under conventional means and by $4.1 trillion under dynamic means that include the economic effects of fiscal policy.

Under a Harris administration, the primary deficit would increase by $1.2 trillion over the next 10 years under conventional means and by $2 trillion under flexible means.

However, JPMorgan analysts say this outlook is unsustainable regardless of who wins the presidency, acknowledging the prospect of larger deficits with Trump.

“Regardless of the election outcome, the trend since the pandemic has been one of profligate fiscal policy absorbing significant amounts of capital and encouraging additional private investment,” the bank said. “At the same time, the mass retirement of the baby boom generation is moving a significant portion of the population from the high-saving phase of their lives to the low-saving phase, reducing the supply of capital.”