Dr. Sarah Zubairy, professor in the Texas A&M economics department and recipient of the Luther H. Soules III ’61 Endowed Chair for Global Macroeconomics, partnered with Michael Plante and Alexander Richter, both of the Federal Reserve Bank of Dallas, to reexamine how increasing federal debt affects long-term interest rates in light of the national debt reaching a record $38 trillion.
The recently released working paper found that if all else holds and the debt increases as currently projected (56 percentage points over the next 30 years), long-term interest rates could rise more than 1.5 percentage points over the next 30 years.
The paper improves on previous methodology, uses new data from 1976 to 2025 from the Congressional Budget Office and found the results are robust across alternative projections, longer-term horizons and model specifications. Specifically, the authors found that if the federal debt-to-GDP ratio rises by one percentage point, long-term Treasury yields increase by roughly three basis points, an economically significant effect about 60 percent larger than the sensitivity currently used in debt projections.
This evidence points to a clear risk: rising debt levels can drive substantial increase in long-term interest rates, tightening financial conditions and weighing negatively on investment and economic growth.
Funding for the research comes from Zubairy’s Endowed Chair.