US National Debt Surpasses $31 Trillion for the First Time... Interest Burden Soars Amid Rate Hikes

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The United States' national debt has surpassed $31 trillion (approximately 43,000 trillion KRW) for the first time in history, the New York Times (NYT) reported on the 4th (local time). Concerns are rising that the interest burden the federal government must bear will increase sharply amid ongoing interest rate hikes by the Federal Reserve (Fed).

NYT cited a Treasury Department report in its coverage. The NYT stated, "Despite the government's debt reaching an all-time high due to the pandemic and financial tax cuts, some policymakers once believed it was manageable, but as interest rates rise, the burden of the national debt is growing over time."

The Peterson Foundation estimates that the federal government's interest burden could increase by about $1 trillion over the next decade due to interest rate hikes. In May, the Congressional Budget Office (CBO) projected that interest costs on the national debt could reach a record $8.1 trillion. The NYT reported that if interest rates exceed the CBO's forecast by just one percentage point, interest costs could surpass U.S. defense spending by 2029.

The Fed has been rapidly raising interest rates since March to curb inflation, which has surged to its highest level in 40 years. The U.S. benchmark interest rate has risen from 0-0.25% in March to 3-3.25% this month.

Earlier, the CBO warned in a report earlier this year that as the U.S. national debt increases, investors might lose confidence in the government's ability to repay it. At that time, the CBO expressed concerns that interest rate hikes driven by inflation could cause such problems.

The NYT noted, "Since President Joe Biden has pledged to reduce the fiscal deficit to $1 trillion over the next decade to ensure the sustainability of U.S. finances, the $31 trillion national debt could become a political issue." It added, "The Biden administration expects the deficit to increase more than previously anticipated over the next three years due to rising interest costs."

Jason Furman, a Harvard professor who served as chairman of the White House Council of Economic Advisers during the Obama administration, said, "We don't know where interest rates will go, but it is clear that whatever we thought a year ago needs to be revised," adding, "It was an acceptable situation before, but now it has been exceeded."