Summary of Deficits are Raising Interest Rates. But Other Factors are Lowering Them.

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Deficits are Raising Interest Rates. But Other Factors are Lowering Them. summary
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Most financial experts stand by the traditional thinking that large deficits and high levels of fiscal debt raise interest rates. But the US national debt, as a percentage of GDP, ballooned from approximately 33% in 2001 to a 2019 level of 76%, while interest rates in March 2001 were more than two percentage points higher than in March 2019. In this cogent analysis for policy professionals, economist Ernie Tedeschi takes a deep dive beneath the surface of a complex dynamic.

About the Author

Ernie Tedeschi is an economist and managing director at Evercore ISI.

 

Summary

US deficit spending and accumulated debt have soared since the early 2000s, marking a spending spree that promises to continue through the foreseeable future. Many experts are steadfast in asserting the long-accepted rationale that rising deficits and debt ultimately lead to higher long-term interest rates. But data from 1999 to 2019 show an inverse association between debt levels and interest rates. The prevailing theory could be completely inaccurate, or it could be incomplete, failing to account for other factors that also bear significantly on interest&#...


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