A substantial proportion, approximately one-third, of the country's immense $36 trillion debt requires refinancing, with Trump pushing for interest rate reductions
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Joining The Money Show, renowned economist and CEO of Futurum Group, Daniel Newman, discusses whether any adjustments to President Trump's existing bill are necessary, as it awaits Senate approval.
With the Treasury Department needing to refinance nearly a whopping third of the astronomical $36 trillion debt carried by the federal government, this serves as the backdrop for President Trump's continuous plea for the Federal Reserve to lower interest rates.
As per the Treasury's Office of Debt Management's report for the second quarter of fiscal year 2025, a staggering 31.4% of the outstanding national debt is due for refinancing within the subsequent year. This translates to a monumental $11 trillion in U.S. debt securities that warrant refinancing over the course of the next 12 months.
The costs associated with servicing this venerable $36 trillion national debt have escalated significantly in recent years as interest rates climbed to confront inflationary pressures the U.S. economy has faced for four decades.
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In fiscal year 2024, the interest costs incurred due to debt servicing skyrocketed by an astounding $239 billion, jumping to an eye-popping total of $949 billion - a figure larger than both the Department of Defense's discretionary budget and federal spending on Medicare.
The burdensome costs of servicing the national debt, alongside escalating spending on Social Security and Medicare due to an agening population, are the primary drivers of the widening federal budget deficit, which is projected to total approximately $1.9 trillion in fiscal year 2025.
Time and again, Trump has advocated for the Federal Reserve to trim interest rates in a bid to stimulate economic growth and save the federal government billions in debt servicing costs.
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The Treasury Department, under the leadership of Secretary Scott Bessent, will have to refinance $11 trillion in debt over the coming year.
Trump, taking to Truth Social, criticized Fed Chair Jerome Powell, who he nominated to the role in 2017, as being a "foolish farmer" and a "bungling buffoon" for the central bank shying away from cutting interest rates. Powell and the Federal Open Market Committee, which sets monetary policy at the central bank, have maintained that the current level of interest rates remains appropriate amid economic uncertainty.
While the Federal Reserve's benchmark rate exerts influence over other market-based interest rates such as Treasuries, mortgages, and credit cards, rate reductions by the Fed only apply pressure for these rates to similarly adjust. They do not guarantee that these rates will indeed conform.
The Fed cut interest rates three times at the end of last year, including a 50-basis-point cut in September followed by two 25-basis-point reductions in November and December. Despite these measures, Powell and the Federal Open Market Committee have reiterated their stance that the current level of interest rates remains suitable at this juncture.
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Policymakers emphasize that they will continue to monitor inflation and labor market data for signs that an adjustment to interest rates might be warranted.
Refinancing such a large portion of debt at elevated interest rates threatens to explode government interest costs, widen the federal budget deficit, and jeopardize long-term economic growth. Lower Federal Reserve interest rate cuts could offer temporary relief by lessening borrowing costs, mitigating the growth of interest payments, and thus, aiding in controlling the budget deficit expansion. However, sustained fiscal deficits, accompanied by interest rate cuts, could fuel inflationary pressures or market distortions. Without fiscal reforms, such as revenue increases, spending cuts, or strategic debt management, these measures might fall short of averting mounting debt burdens and potential fiscal crisis risks in the medium to long term.
- Daniel Newman, an economist and CEO of Futurum Group, discusses whether adjustments to President Trump's bill are necessary for Senate approval, given the Treasury Department's need to refinance nearly a third of the $36 trillion federal debt.
- The Treasury Department, under Secretary Scott Bessent's leadership, will have to refinance $11 trillion in debt over the coming year, as per a report from the Treasury's Office of Debt Management.
- President Trump has frequently advocated for the Federal Reserve to lower interest rates to stimulate economic growth and save the federal government billions in debt servicing costs.
- In recent years, costs associated with servicing the $36 trillion national debt have escalated significantly, due to climbing interest rates and inflationary pressures.
- As inflationary pressures persist and an aging population leads to escalating spending on Social Security and Medicare, the burdensome costs of servicing the national debt are primary drivers of the widening federal budget deficit.
- Lower interest rate cuts by the Federal Reserve could provide temporary relief by lessening borrowing costs, mitigating the growth of interest payments, and aiding in controlling the budget deficit expansion. However, without fiscal reforms, such as revenue increases, spending cuts, or strategic debt management, these measures might fall short of averting mounting debt burdens and potential fiscal crisis risks in the medium to long term.
