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Deficits are Raising Interest Rates. But Other Factors are Lowering Them.
Article

Deficits are Raising Interest Rates. But Other Factors are Lowering Them.

Ernie Tedeschi
Medium, 2019
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Editorial Rating

7

Qualities

  • Analytical
  • Overview
  • For Experts

Recommendation

Most financial experts stand by the traditional thinking that large deficits and high levels of fiscal debt raise interest rates. But the US national debt, as a percentage of GDP, ballooned from approximately 33% in 2001 to a 2019 level of 76%, while interest rates in March 2001 were more than two percentage points higher than in March 2019. In this cogent analysis for policy professionals, economist Ernie Tedeschi takes a deep dive beneath the surface of a complex dynamic.

Take-Aways

  • Traditional economic thinking holds that rising deficits and debt ultimately lead to higher interest rates.
  • But data from 1999 to 2019 show an inverse association between debt levels and interest rates.
  • Three circumstances are substantial enough to mitigate some of the theoretical effect: an aging population, productivity lulls and high levels of foreign-held US debt.

About the Author

Ernie Tedeschi is an economist and managing director at Evercore ISI.

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