Surging federal debt will increase borrowing costs, reduce investment, and harm economy

From Yahoo Finance: 2025-05-19 11:34:00

The Peter G. Peterson Foundation warns that the increase in federal debt over the next decade will lead to higher borrowing costs, a 13.6% decrease in private investment, and a $340 billion reduction in the economy.

US debt is projected to reach 117% of GDP in 2035 and 156% by 2055, causing a loss of 1.2 million jobs and a 0.6% wage decrease.

Moody’s downgraded US debt to Aa1 from Aaa due to increasing government debt and interest payment ratios, with little expectation of significant reductions in mandatory spending and deficits.

The yield on the 10-year Treasury initially rose to 4.56% after the downgrade before falling to 4.46%, impacting business and consumer lending rates.

Each 1% increase in the debt-to-GDP ratio will raise interest rates by 0.02%, further complicating the fiscal outlook.

Bank of American Securities analysts believe Moody’s downgrade is a signal that current fiscal proposals may worsen the US’s financial trajectory.

Federal debt growth will lead to a decline in per capita income, affecting consumers and long-term economic health.

The Peterson Foundation emphasizes the need for leadership to address the mounting federal debt and its consequences for the economy.

Read more: Surging federal debt to raise borrowing costs, erode investment: Peterson