Important Takeaways:
- With U.S. debt now at $35.3 trillion, the cost of paying the interest on all that borrowing has soared recently and now averages out to $3 billion a day, according to Apollo chief economist Torsten Sløk.
- And that includes Saturdays and Sundays, he pointed out in a note on Tuesday.
- The daily interest expense has doubled since 2020 and is up from $2 trillion about two years ago. That’s when the Federal Reserve began its campaign of aggressive rate hikes to rein in inflation.
- In the process, that made servicing U.S. debt more costly as Treasury bonds paid out higher yields. But with the Fed now poised to start cutting rates later this month, the reverse can happen.
- “If the Fed cuts interest rates by 1%-point and the entire yield curve declines by 1%-point, then daily interest expenses will decline from $3 billion per day to $2.5 billion per day,” Sløk estimated.
- Meanwhile, the federal government closes out its fiscal year at the end of this month, and the year-to-date cost of paying interest on U.S. debt was already at $1 trillion months ago.
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