Presentation by Wendy Edelberg, CBO’s Assistant Director for Macroeconomic Analysis, at the Social Security Trustees Working Group

1. Congressional Budget Office
CBO’s Assessment of the
Long-Term Outlook for Interest Rates
Social Security Trustees Working Group
Washington, D.C.
October 5, 2015
Wendy Edelberg
Assistant Director, Macroeconomic Analysis
For additional information, see Congressional Budget Office, The 2015 Long-Term Budget Outlook (June 2015), pages 116–118,
www.cbo.gov/publication/50250.

2. 1CONGRESSIONAL BUDGET OFFICE
Interest Rates

3. 2CONGRESSIONAL BUDGET OFFICE
Nominal and Real Interest Rates on 10-Year Treasury Notes
* Calculated using the consumer price index research series using current methods. Calculated using the CPI
for all urban consumers, the real 10-year Treasury note rate averaged 2.9 percent from 1990 to 2007.

4. 3CONGRESSIONAL BUDGET OFFICE
Factors Pushing Treasury Rates Down Relative to the
1990–2007 Average
■ Lower rate of inflation
■ Slower labor force growth
■ Increase in the private saving because of greater
income inequality
■ Lower productivity growth
■ Greater demand for safer assets

5. 4CONGRESSIONAL BUDGET OFFICE
Factors Pushing Treasury Rates Up Relative to the
1990–2007 Average
■ Greater federal borrowing
■ Less investment from abroad as a share of output
■ Higher capital share of income
■ Decrease in private saving rate because of an aging population

6. 5CONGRESSIONAL BUDGET OFFICE
Different Projections of Interest Rates on 10-Year
Treasury Notes

7. 6CONGRESSIONAL BUDGET OFFICE
Spread Between 10-Year Treasury Notes and
3-Month Treasury Bills

8. 7CONGRESSIONAL BUDGET OFFICE
Examples of Sources of Uncertainty
■ Changes in risk preferences are not observable.
■ Quantifying the effects of the distribution of income is
difficult.
■ Prices implied by financial markets are hard to interpret,
particularly over the longer term.

9. 8CONGRESSIONAL BUDGET OFFICE
Average Interest Rates on Federal Debt Held by the Public
■ The average maturity of federal debt is less than 10 years.
■ Interest rates are projected to be lower on shorter-term debt.
■ Only a portion of federal debt matures each year.
■ The average rate on all federal debt held by the public is
projected to be 3.9 percent from 2015 to 2040 (lower than the
4.5 percent for 10-year Treasury notes).

10. 9CONGRESSIONAL BUDGET OFFICE
Interest Rates on Bonds Held by the Social Security
Trust Funds
■ Trust funds hold special-issue bonds that generally earn rates
higher than the average on federal debt.
■ The interest rate on those bonds is projected to average
4.5 percent from 2015 to 2040.
■ That interest rate is projected to average 4.7 percent beyond
2040.