by ChampionshipUsed9855
Long-term Treasury rates increased from 3.5% to 5% during last 6 months. It may push long-term inflation above current expectations.
US government has debt of 120% GDP and duration of 7+ years, therefore this 1.5 percent increase in long-term interest rate will increase interest payment by 1.8% GDP. It may look tiny, but in terms of federal budget it is extra 10% of collections.
Good news is that these higher rates will be applied only to newly issued Treasuries, therefore the effect will appear in several years.
Long-term rates at 5% will lead to government interest expenses around 6% GDP and if funded by printing money, will cause permanently high inflation. With long-term real GDP growth of 2%, inflation could be 4% long-term.
For stock market this scenario is far from great.