Goldman: Something strange is happening with the US economy that could cause interest rates to jump

ArticleDebt crisis May 15, 2018 - 7:50:00 AM

The U.S. budget deficit is growing at a time when the unemployment rate is falling, something that hasn't happened in peacetime since World War II.

America's budget deficit and unemployment rate are heading in opposite directions — something that's never happened during post-World War II peacetime and could cause a significant jump in interest rates.

Goldman Sachs projects, for instance, that the 10-year Treasury note could be yielding 3.6 percent next year.

The deficit increase is coming due to the recent barrage of fiscal stimulus from Congress, including a $1.5 trillion tax cut approved in December 2017 and a $1.3 trillion spending bill aimed at keeping the government operating through the end of the fiscal year.

Normally such moves would come in the early stages of an economic recovery. The U.S. economy, though, is in the eighth year of its post-financial crisis expansion, middling as it has been…

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