Fiscal Watchdog Warns US Is ‘Entering a Debt Spiral’ as Treasury Rates Hit 5% — Ed Yardeni Flags Bond Vigilante Risk If Fed 'Fails to Subdue Inflation'
The Committee for a Responsible Federal Budget warned that the U.S. is “entering a debt spiral” as interest rates on new Treasuries run above expected economic growth. CRFB said last week that rates on new Treasury bonds and notes are around 5%, while medium-term nominal economic growth is expected to be closer to 4%. Debt Spiral Warning “This could lead to a fiscal crisis,” CRFB said, citing possible outcomes including higher unemployment, falling asset values and surging inflation. Treasury Secretary Scott Bessent said in a recent Q&A at Southern Methodist University’s Cox School of Business that the U.S. can “grow our way out of this” if annual growth reaches 3%. “We don’t have a revenue problem. We have a spending problem,” he said. Yardeni’s Vigilante Test Yardeni Research founder Ed Yardeni wrote in a recent note that in the 1980s, “the Bond Vigilantes pushed the bond yield above nominal GDP,” reported Fortune on Sunday. “They haven’t done that so far,” he wrote, adding the risk is that they will if “the Fed fails to subdue inflation.” Yardeni also said the main reason yields rose sharply is that “the U.S. economy is booming. ” The 10-year Treasury yield recently closed at 5.
S. is “entering a debt spiral” as interest rates on new Treasuries run above expected economic growth. CRFB said last week that rates on new Treasury bonds and notes are around 5%, while medium-term nominal economic growth is expected to be closer to 4%. Debt Spiral Warning “This could lead to a fiscal crisis,” CRFB said, citing possible outcomes including higher unemployment, falling asset values and surging inflation.
S. can “grow our way out of this” if annual growth reaches 3%. “We don’t have a revenue problem. We have a spending problem,” he said.
Yardeni’s Vigilante Test Yardeni Research founder Ed Yardeni wrote in a recent note that in the 1980s, “the Bond Vigilantes pushed the bond yield above nominal GDP,” reported Fortune on Sunday. S. economy is booming. 11%, its highest level since 2007.
In an earlier note, he said the vigilantes tend to be “on the loose” when the 10-year yield exceeds nominal GDP. Read Also: White House Denies Plans to Sell Weapons to China After Ambassador Says Trump Asked Xi Jinping if Beijing Wanted to Buy AI Spending Pressure Other economists point to AI spending as a factor in both growth and yields. UBS Group (NYSE: UBS ) economist Jonathan Pingle wrote in a recent note that AI investment spilling into other sectors is “as surprising as it is extensive,”.
Rockefeller International Chairman Ruchir Sharma wrote in a recent Financial Times op-ed that the AI bubble could pop if the 10-year yield decisively exceeds 5%, a “new era of tighter money,” the report said. Oaktree Capital Management co-founder Howard Marks has made a similar link between AI spending and rates. ” He argued that more than $5 trillion in projected global AI data-center investment could compete with federal borrowing for capital, putting upward pressure on interest rates. Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published editors.
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