![](\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2026\/06\/GettyImages-1475134779-e1782420216515.jpg?w=2048\")
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The national debt\u2014a barely comprehensible $39 trillion\u2014seems, to hear economists tell it, forever one shock away from bringing the whole country down. Lately, the designated culprit is the Federal Reserve.<\/p>\n
The case is relatively straightforward. On June 17, the Fed didn\u2019t raise interest rates\u2014it held them at 3.5% to 3.75%, as expected\u2014but it signaled that a hike could be coming this year, a reversal from a few months ago, when it expected to cut them instead. In his first meeting as Fed chair, Kevin Warsh made clear he\u2019s serious about getting prices under control, with the Fed\u2019s statement vowing that \u201cthe Committee will deliver price stability.\u201d\u00a0<\/p>\n
Traders, at least initially, took the hint and nudged their bets toward higher rates, knocking stocks lower to roughly 0.5% to 1% on the day amid worries that more expensive borrowing could squeeze the debt-fueled AI build-out.\u00a0<\/p>\n
But it was the bond market\u2019s reaction that was telling: Short-term rates rose, but the 10-year Treasury yield, the rate that actually drives the cost of the debt, barely moved, and soon drifted lower. Why wouldn\u2019t it drift up on concerns of the national debt?<\/p>\n
The government already spends more than $1 trillion a year just on interest, more than it spends on the military, health care, and all the other fast-growing lines in the budget. But a tougher Fed needn\u2019t touch that bill.\u00a0<\/p>\n
The debt isn\u2019t just one big loan at a fixed rate; it\u2019s a complicated mix, because the government is constantly borrowing new money to pay off old loans, and paying whatever rate the market charges that day. When the Fed pushes rates up, only the short-term, cheaper loans get pricier.<\/p>\n
\u201cIt\u2019s the very front end,\u201d Eric Winograd, chief U.S. economist at AllianceBernstein and a former New York Fed staffer, told Fortune<\/em>. Even if the Fed hikes, he said, slightly higher short-term rates for a year \u201cjust doesn\u2019t really move the needle.\u201d<\/p>\n What matters more for the debt are the rates the government locks in for 10 or 30 years. And those are falling right now, mostly because oil prices have dropped and inflation is cooling. Buyers keep showing up at the auctions where the government sells new debt. That \u201cdebasement trade\u201d that dominated winter\u2019s media headlines, that the world is dumping Treasuries for gold? \u201cMore talk than action,\u201d Winograd says.<\/p>\n But there are still two warning signs underneath the calm.\u00a0<\/p>\n The first is that investors have slowly started charging more to lend to the government for the long haul, a kind of nervousness premium that\u2019s now the highest it\u2019s been in over a decade, according to a note from David Doyle, the head of economics at investment bank Macquarie. The second is the deficit. The government is borrowing about 6% of the entire economy a year even though unemployment is low and the economy is healthy; a combination that\u2019s historically bizarre. Normally, it would only borrow this heavily in a recession.<\/p>\n Secondly, the official forecasts may be too rosy. The government pays an average of about 3.35% on its debt today, and budget forecasters assume that creeps up to only 3.9%. If it climbs to 5% or 6% instead, Macquarie warns, then the interest bill balloons and the deficit could top 10% of the economy, leading to a negative feedback loop where more debt feeds wider deficits feeds still more borrowing.<\/p>\n There\u2019s a darker possibility as well, that the calm in long-term rates may be partly manufactured, argues Erik Norland, chief economist at CME Group in a note. The government has been borrowing more short-term and less long-term, while the Fed has slowed the sale of its own bond holdings; both of which hold long-term rates down artificially. You can see what happens without that cushion overseas, where the same money troubles have sent long-term rates soaring in Japan, the U.K., and France.<\/p>\n But even with all that, there\u2019s no crisis yet. There\u2019s \u201cno magic number\u201d where the debt suddenly becomes unsustainable, Winograd says; it \u201cwill be sustained as long as there are lenders willing to sustain it. And so far, there have been.\u201d If that ever changes, he adds, it\u2019ll be a political decision by big foreign lenders\u2014mostly Asian central banks\u2014not an economic problem.<\/p>\n As for the tough talk that started all this, Winograd shrugs it off. \u201cI don\u2019t read too much into the hawkishness,\u201d he says. \u201cHe\u2019s been the Fed chair for one meeting.\u201d <\/p>\n<\/div>\n #bond #market #trillion #national #debt #Washington #doesnt<\/p>\n","protected":false},"excerpt":{"rendered":" The national debt\u2014a barely comprehensible $39 trillion\u2014seems, to hear economists tell it, forever one shock away from bringing the whole country down. Lately, the designated culprit is the Federal Reserve.… <\/p>\n","protected":false},"author":1,"featured_media":9240,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[3630,4002,772,2020,176,1115,430,33,761,771,406],"class_list":["post-9239","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-news","tag-bond","tag-consumer-spending","tag-debt","tag-doesnt","tag-inflation","tag-interest-rates","tag-jobs","tag-market","tag-national","tag-trillion","tag-washington"],"_links":{"self":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/9239","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9239"}],"version-history":[{"count":0,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/9239\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/media\/9240"}],"wp:attachment":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9239"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9239"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}