The FOMC is going to start increasing its target Federal Funds rate in the near future. The likely result is that investors, who have become accustomed to an environment in which they can't buy risk-free assets unless they agree to earn virtually nothing on them, will start looking for a higher yield. That means that as the U.S. Treasury issues more debt and rolls over existing obligations, the price it has to pay will start to rise.
To be clear, absent a highly unlikely economic catastrophe, interest rates are expected to remain at historically low levels for a considerable time to come. That said, as they rise, the consequences for the federal budget are fairly dramatic.
http://www.cnbc.com/id/102499815
2 comments:
I think current economy has got back to a good level that raising interest rate should be expected. Nevertheless, raising it slowly would be better in my opinion to observe the impacts and change it if necessary before anything worse happen. Overall the positive impact of calculated Federal fund rate raise should outweight other negative outcome given the economy is currently back to expansion cycle.
This defiantly increased my concern for the debt in the upcoming years especially with the optimism of rising interest rates. That brings the question of what will be done about the debt and the increases in interest?
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