The US Government 'Needs Lower Rates More Than Anyone' As Federal Interest Payments Touch $1.2 Trillion, Says Popular Commentator

On Sunday, in a post on X, The Kobeissi Letter highlighted the mounting pressure of interest payments for the U.S. government, saying that the Federal Reserve may have to slash interest rates substantially to prevent debt servicing from spiraling out of control.

Federal Interest Payments Reach $1.2 Trillion

“The US government needs lower rates more than anyone,” the post says, highlighting the fact that “US Treasury interest payments have reached a record $1.2 trillion over the last 12 months,” citing data from Bank of America’s Global Research team.

It says that the U.S. fiscal trajectory could worsen if this continues, adding that “annual interest expense would hit $1.4 trillion in 2026,” if interest rates stay the same, highlighting the growing strain of higher borrowing costs, if the Fed does not cut interest rates during its next meeting.

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The post says that the only way to deal with this issue is for yields on government debt to fall significantly. “To keep interest costs stable, the average yield on US government debt, which has a maturity of 5-6 years, would need to drop below 3.1%,” it says.

With the 5-Year Treasury yield now at 3.8%, the post notes that it is now far from that target, adding that the Fed would need to cut rates by at least “75 basis points,” in order to “calm the fire.”

It concludes with a stark warning that the U.S. “deficit spending is out of control,” continually adding to the national debt and its interest expenses.

Fed Chair Hints At A Rate Cut

Last week, Fed Chair Jerome Powell hinted at a rate cut in September, with his comments regarding the “shifting balance of risks” reigniting optimism in the markets and among observers.

Recently, hedge fund manager Ray Dalio echoed similar concerns when highlighting the risks of rising interest payments on federal debt, saying that they could surge from $1 trillion to $2 trillion if the government does not rein in spending and address its deficits.

Dalio warned that this could lead to significant spending cutbacks, unprecedented tax increases, or extensive money printing and devaluation.

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