The U.S. national debt has passed the $35Tn mark, and the budget deficit keeps growing. As the government picked up the tab on the GFC and Covid crisis, there seems to be no end to the current spending spree. As you can see in the chart below, for the month of July, the U.S. had $330Bn in tax receipts but spent $574Bn, and out of those, 25% ($81Bn) went to pay interest on debt. Debt levels and deficits are starting to affect economic growth, and even though it’s not a Fed mandate, lower interest rates will ease the burden of debt coverage, provided it is not used as an excuse to get into more debt. If the U.S. economy falls into recession, the ratio of debt to gdp will worsen even more and the U.S. may see its debt rating revised downward. Despite the fact that none of this directly affect price stability and full employment, and its Congress responsibility, this is another reason to lower rates.
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