Interest Rate Outlook

Deficit surge and policy uncertainty amplify upward rate trajectory. Interest rate risk remains tilted to the upside as investors contend with a convergence of structural and policy-driven pressures. Chief among them are rising fiscal deficits and elevated uncertainty around U.S. trade policy. The Congressional Budget Office already projects the deficit to total $21 trillion over 2025—2034. If every temporary tax cut in the House bill is kept on the books, BudgetLab estimates the deficit would rise by another $5 trillion, pushing the 10-year total to about $26 trillion. While tariff revenue could shave roughly $2.5 trillion off this amount, the trajectory will still require a substantial increase in new Treasury issuance. At the same time, tariff-driven shifts in trade policy have added volatility to global supply chains and raised concerns about inflationary pressures. Combined, these dynamics elevate the likelihood of higher long-term interest rates, as investors demand higher yields for fiscal and policy uncertainty.