The United States government, like many other countries, finances its spending by issuing government bonds, which are purchased by private investors, banks, foreign governments, and even the Federal Reserve.
In effect, anyone who buys these bonds is lending money to the government , expecting to receive a repayment with interest at maturity. The problem is that these debts are not eternal: they have very specific maturities, ranging from a few months to thirty years.
By 2025, a whopping $9.2 trillion in U.S. government debt will mature, meaning it will need to be repaid or refinanced with new issuance.
And here comes the difficulty: with interest rates at 15-year highs, refinancing will cost much more than in the past, increasing the pressure on government coffers.
A situation that makes the economic future of the United States increasingly uncertain and that could push the administration to make even drastic choices to contain costs.
The situation is exacerbated by the fact that the national debt has reached $36 trillion and interest costs are rising. Currently, the average interest rate on Treasury debt has risen to 3.2% , the highest level in 15 years . In addition, the Federal Reserve has raised interest rates, increasing the financial burden on the government.
By June 2025, 70% of maturing debt will have to be refinanced. According to analysts such as The Kobeissi Letter , an interest rate cut could provide significant relief for the government, reducing the financial burden on taxpayers.
Could recession lower interest rates?
While recession is a bad thing, some experts see it as a quick fix to the debt problem .
History has shown that recessions trigger a reduction in interest rates by the Fed , as the contracting economy prompts the central bank to stimulate growth by lowering the cost of money.
According to The Kobeissi Letter , an economic slowdown could be the ideal solution to lower rates. The interest rate on 10-year Treasuries has already fallen 60 basis points in the past two months, signaling a possible economic slowdown.
Rising uncertainty and talk of future rate cuts could push the Federal Reserve to a more accommodative policy. Some experts believe that a recession is the most effective method of lowering costs , since a reduction in demand would lead to a decline in prices.
What is the position of the United States government?
Many industry leaders, including President Donald Trump , believe the U.S. economy can avoid a recession through aggressive trade policies and tariffs.
In the past, Trump has imposed tariffs on Mexico and Canada , but historical analysis suggests that these measures have begun to slow economic growth.
Experts believe that an economic slowdown combined with import tariffs could further aggravate the situation. However, Secretary of Commerce Howard Lutnick has stated that there will be no recession and that, on the contrary, customs duties will help the American economy.
Despite the reassurances, macroeconomic indicators tell a different story.
The latest GDP forecast suggests an increased likelihood of recession, with Goldman Sachs recently raising the probability to 20% .
With inflation rising, borrowing costs rising, and a huge amount of debt to refinance, a recession could become an effective tool to lower interest rates and ease the burden of debt.
That said, a recession would not be a painless solution ; it would bring significant hardship to American citizens, although some experts believe that would be a lesser evil than accumulating unsustainable debt.
Another temporary option would be to slow the economy in a controlled manner, allowing the Federal Reserve to gradually lower interest rates to reduce the cost of borrowing.
It remains to be seen whether the administration will continue to pursue policies that could push the economy into recession, or whether it will seek less risky alternatives to manage this unprecedented crisis.
At the moment, Bitcoin and cryptocurrencies are suffering a lot, also because the market still has to evaluate the tariff policy and the new initiatives wanted by Trump.
However, a drop in interest rates would be an excellent viaticum since it would make loans less expensive, facilitating investments, including those in crypto.
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