As the Federal Reserve raises interest rates in the US, the government is forced to spend more money on paying interest to people who buy treasury bonds. Over the past two years, the US has raised interest rates to combat inflation, resulting in bond investors making a significant amount of money. However, this has also led to a surge in government spending on paying interest on public debt, which currently stands at around 34 trillion USD.
According to statistics from Bloomberg, in March, the US Treasury paid 89 billion USD in bond interest, amounting to around 2 million USD per minute. This number is expected to increase in the near future as the government continues to spend and the Fed hesitates to lower interest rates. Data from the St. Louis shows that the government’s interest payments could exceed $1 trillion this year, almost double the amount before the Fed started its rate hike in 2022.
The yield on 10-year US government bonds is currently around 4.5%, providing investors with a stable and nearly risk-free source of income. This has led to a significant increase in assets of funds that invest in short-term securities like US government bonds. However, some analysts believe that high interest rates may be contributing to inflation by making consumption more attractive with stable and higher income from bonds.
There is a debate among experts about the impact of high interest rates on inflation, with some suggesting that lowering interest rates could help cool down prices. However, others argue that a reduction in house prices would be necessary for inflation to significantly decrease, requiring a decrease in interest rates by the Fed. The complex relationship between interest rates, inflation