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Home Publications Blogs Beat the Press The Post Couldn't Find CBO's Projection that Higher Interest Rates from the Fed Will be the Major Driver of Deficits

The Post Couldn't Find CBO's Projection that Higher Interest Rates from the Fed Will be the Major Driver of Deficits

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Wednesday, 06 February 2013 05:43

Currently net interest rate payments are 1.4 percent of GDP. The Congressional Budget Office (CBO) projects this will rise to 3.3 percent of GDP by 2023. This 1.9 percentage point rise in projected interest payments is by far the largest cause of projected increases in deficits over the decade. In addition, the interest refunded from the Fed to the Treasury is projected to fall by 0.3 percentage points, meaning that higher interest costs are projected to add a total of 2.2 percentage points to the deficit.

This rise is noteworthy because it is almost entirely due to higher interest rates rather than large debt, since the debt to GDP ratio is projected to be only marginally higher in 2023 than it is today. The projection of higher interest rates is in turn a projection about Federal Reserve Board policy. In other words, CBO projects that the Fed's decision to raise interest rates over the next decade will be the main factor pushing deficits higher.

The Post somehow missed this one.

Comments (2)Add Comment
How is that possible
written by Jennifer, February 06, 2013 8:34
It is my understanding that the Fed has specifically tied interest rates to growth; if this is the case you could not have interest payments contributing to the deficit significantly because it would be cancelled out by income generated by increased growth. Am I missing something?
...
written by Denis, February 06, 2013 9:23
It's Lori Montgomery, Dean. 'Nuff said.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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