The New Inflation Regime

2026-05-31 21:00:00 ET

The interest payments required to fund the US government debt are becoming a real problem. Since 2020, net interest outlays as a percent of GDP have risen from 1.4% to 3.1%, and the Congressional Budget Office ((CBO)) is projecting this ratio to grow to 4.6% by 2036. The CBO published its budget and economic outlook for 2026 to 2036 in February of this year. Note, the CBO’s economic outlook for the next decade has Treasury yields contained at a level between 3.1% and 3.3% for 3-year maturities and between 4.1% and 4.4% for riskier 10-year maturities. If interest rates were to rise above these levels, due to rising inflation expectations, the net interest cost as a percent of GDP in the CBO’s projections would be even higher....

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