In a recent interview with CNBC, U.S. Treasury Secretary Janet Yellen addressed the concerns surrounding the country’s swelling national debt. Yellen emphasized that as long as the debt remains stable relative to the size of the economy, it is manageable. She also highlighted the impact of high interest rates on the $34.7 trillion debt load the U.S. is currently managing.
Yellen stressed the importance of considering the real interest cost of the debt, stating that this is the true burden that should be analyzed. Despite the net interest costs on the debt totaling $601 billion during the 2024 fiscal year, Yellen expressed confidence in President Joe Biden’s plans to address the situation. The president has proposed $3 trillion of deficit reduction over the next decade, which Yellen believes will help stabilize the debt-to-income ratio and the interest burden.
However, multiple Congressional Budget Office reports have warned about the escalating costs of debt and deficits. The public share of the national debt, currently around $27.6 trillion, is projected to reach new record levels as a share of the total economy in the coming decade. With the public share of the national debt expected to soon surpass 100% of GDP at current spending rates, Yellen’s focus on managing the situation is crucial.
The rising financing costs for the debt have coincided with the Federal Reserve’s efforts to combat high inflation rates. Although inflation has moderated since hitting its highest level in over 40 years in mid-2022, the Fed has maintained higher benchmark rates to ensure that price increases align with the central bank’s target of 2%. Following its recent policy meeting, the Fed acknowledged “modest” progress on inflation but has not yet signaled a reduction in rates.
As investors and policymakers monitor the evolving economic landscape, understanding the implications of the national debt and interest rates is essential. Stay informed on the latest developments and insights by joining the Extreme Investor Network. Our platform provides exclusive analysis and resources to help you navigate the complexities of the economy and make informed investment decisions.