From Fortune · Eleanor Pringle · · 1m 30s
Every rate hike costs Treasury $95 billion a year
Bank of America calculates the fiscal cost of the Federal Reserve keeping interest rates elevated while the White House pushes for cuts.
In brief
Bank of America calculates the fiscal cost of the Federal Reserve keeping interest rates elevated while the White House pushes for cuts. Bank of America estimates each one percent Fed rate hike costs the Treasury an extra ninety five billion dollars annually in national debt interest, fueling White House pressure on…
Trump's push for lower rates
President Donald Trump and his team have pressured the Federal Reserve to cut interest rates, arguing they hurt consumers' chances of owning homes. They previously went to extraordinary lengths against Fed chairman Jerome Powell.
The Treasury's annual interest bill
Treasury payments to service the forty trillion dollar national debt surpassed two trillion dollars for the two thousand twenty six fiscal year, the department recently announced.
Bank of America's cost calculation
Bank of America analysts estimate that interest expense rises ninety five billion dollars a year for every one hundred basis points of Fed hikes. Higher rates compound into materially greater interest expense over time.
“We estimate that interest expense rises $95 billion a year for every 100bps of Fed hikes”
Congressional Budget Office scenarios
The Congressional Budget Office forecast that a one point five percent rate increase would add six trillion dollars to deficits with four point nine trillion in extra net interest costs.
Risk of a debt spiral
Global investors are demanding higher Treasury yields to compensate for mounting fiscal risks. Mark Zandi, chief economist at Moody's, warned that higher rates feed into debt loads, pushing rates up further in a vicious cycle.
“A vicious cycle threatens to take hold, with higher rates adding to the interest payments and debt load, which in turn pushes rates up even more.”
In short
Bank of America estimates each one percent Fed rate hike costs the Treasury an extra ninety five billion dollars annually in national debt interest, fueling White House pressure on the Federal Reserve to cut rates.
