About me

I am Henry Bowers, currently pursuing a Master of Science in Economics from Purdue University’s Mitch Daniels School of Business. I have always had an interest in learning data science for finance and economics to make better-informed investment decisions. After taking online courses through DataCamp and reading numerous articles on R, I decided to take a capstone course in financial econometrics during my undergraduate studies. Throughout the class, I learned even more about risk management and data visualization of time series. I have a growing passion for understanding data science and applying those skills to make better-informed investment decisions for my portfolio using computational investment strategies with R programming. Skills I developed include multi-asset portfolio construction, optimization, risk management, and volatility modeling. In my current master’s program, I am focusing on financial economics and economic policy combining the two areas to develop a deeper understanding of how financial markets influence economic policies and vice versa.

Linkedin: https://www.linkedin.com/in/henry-bowers/

Introduction

Currently taking a course on federal budgets and policy for my masters program taught by Keith Hall. This week we had a very interesting question to answer for our weekly assignment and I wanted to share my reponse with my connections as this topic brings awarenes to a growing problem with the U.S. Debt.

About Keith Hall: Keith Hall became the ninth Director of the Congressional Budget Office on April 1, 2015. He has more than 25 years of public service, most recently as the Chief Economist and Director of Economics at the International Trade Commission (ITC). Before that, he was a senior research fellow at George Mason University’s Mercatus Center, the Commissioner of the Bureau of Labor Statistics, Chief Economist for the White House’s Council of Economic Advisers, Chief Economist for the Department of Commerce, a senior international economist for the ITC, an assistant professor at the University of Arkansas, and an international economist at the Department of Treasury. In those positions, he worked on a wide variety of topics, including labor market analysis and policy, economic conditions and measurement, macroeconomic analysis and forecasting, international economics and policy, and computational partial equilibrium modeling. He earned his Ph.D. and M.S. in economics from Purdue University.

More Information: https://www.mercatus.org/scholars/keith-hall and https://www.bls.gov/bls/history/commissioners/hall.htm

Disclosures

Data gathered for research has been downloaded from U.S. Treasury Fiscal Data and the Federal Reserve Bank of St Louis (FRED). Opinions written here are of my own and not of my current employer.

Weekly Question

The interest rate on U.S. treasury securities tends to be very low. This is in large part because the risk in buying government-issued debt is perceived as very low. However, in 2011 the S&P downgraded treasuries to a rating below AAA for the first time and stated that “the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges”. This turned out to be a false alarm and there was no lasting impact on federal government borrowing. However, many have voiced concern that excessive federal debt will eventually lead to a crisis where buying U.S. treasury securities is perceived as much riskier than in the past. What would be the result on debt sustainability if interest rates on these securities rose significantly? How might this impact the economy?

Debt Analysis

As we all know the Federal debt is becoming an issue and its almost 40 trillion in total. Despite the amount of debt, the United States government has currently we should take into consideration the growth of our federal debt as that plays a factor in monetary policy decision-making as well.

As shown here, debt becomes the majority of an issue during recessionary periods which is when we see the most change, however during non-recessionary periods when the economy is “stable” the debt actually grows at a much slower rate and we can currently see that the growth of debt is declining, however, this may change due to current economic policies so fiscal policy officials need to pay attention to this as well. Even though the growth is slowing we are currently in a high-interest-rate environment, because of this we are seeing larger payouts on interest expense.

As of May 31, 2025, the U.S. government reported paying out $83 billion in interest expenses on public issues, driven by a rising interest rate environment. The reason I am examining interest rate expenses on public issues rather than government issues is because, according to the U.S. Treasury fiscal data website, interest expenses on public issues constitute the majority. The U.S. is currently in a debt crisis, with rates at decade highs; this will not be sustainable long term. Despite rising interest rates having positives, such as higher savings account rates and, as we saw, higher yields on treasury securities that consumers could buy to earn more interest, this overall makes it more costly for the government to fund daily operations, with nearly $80 billion each month directed toward public issues interest expenses.

Inflation Analysis

Rising interest rates have historically assisted lower inflation, in the past 3 years we have gone from over 8% inflation to as of May 2025 Inflation report for headline inflation (All Items) 2.4% and Core inflation (All items less food and energy) 2.8%.

Time for Powell to cut rates? when looking at key inflation categories, we can see overall they are coming down. However, due to global geopolitical conflicts and the current tariff war, we have seen a slight increase in YoY of food at home and food away from home indexes, driving the prices to become more expensive for the average consumer. Although shelter costs are coming down, can still see that a YoY increase in rental prices is signaling housing costs are still more expensive than the overall index, which is reducing consumers’ purchasing power and raising their overall cost of living.