No wonder the White House wants Warsh to cut: A 1% Fed rate hike costs the Treasury an extra $95 billion a year in national debt interest

President Donald Trump and his administration have repeatedly urged the Federal Reserve to lower interest rates, arguing that higher rates hurt consumers' ability to purchase homes. However, Bank of America has calculated that the cost of elevated rates to the U.S. government is substantial. The bank's analysts Meghan Swiber, Stephen Juneau, Mark Cabana, and Ralph Axel note that as interest rates persist, the fiscal deficit risks increase and the long-term fiscal math becomes more challenging.

While the near-term deficit outlook remains relatively unchanged, higher interest rates make the government's financing needs grow over time. The Congressional Budget Office (CBO) projects that if interest rates increase by 1.5% over current projections, the national deficit would rise by $6 trillion, with an additional $4.9 trillion in net interest costs.

For every 100 basis points of Fed rate hikes, interest expense increases by $95 billion per year. Bank of America's analysis suggests that even if primary deficits remain stable, the growing interest burden will significantly elevate the government's financing requirements.