Chad Laurie is an intern at The Concord Coalition.
Historically low interest rates, held down by the Federal Reserve’s quantitative easing program, have recently begun to rise sharply. Over the past few weeks, the interest rates on the federal debt rose 67 basis points from 1.66 percent to 2.33 percent. The increase is on pace with what the Congressional Budget Office projected in its most recent budget outlook; CBO estimates there will be $223 billion in net interest payments this year. In that same outlook, the CBO’s baseline assumes an increase in interest rates due to a recovering economy, and projected that interest payments on the federal debt would be $823 billion, or 3.2 percent of GDP in 2023, a percentage that has been exceeded only once in the past 50 years. With rates approaching levels consistent with a growing economy, interest costs will be the fastest growing spending program in the federal budget.
Why Were Rates So Low and Why Are They Rising Now?
During and after the recession, the Federal Reserve bought mortgage-backed bonds and Treasury securities to make borrowing cheaper for consumers and the government...