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2024.04.01 07:19
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Bank of America: If the Federal Reserve does not cut interest rates, the interest on the US government's debt will soar to $1.6 trillion

Bank of America expects that by the end of this year, interest payments will exceed spending on social security, healthcare, medical insurance, and national defense, becoming the largest expenditure for the US government

Recently, Michael Hartnett, Chief Investment Officer of Bank of America, stated in his latest report that with the increase in US government debt, interest expenses are rising rapidly.

The report points out that the US government's interest payments on debt in the past 12 months have reached $1.1 trillion, doubling since the outbreak of the COVID-19 pandemic. Hartnett predicts that if the Federal Reserve does not cut interest rates by 150 basis points in the next 12 months, following the current trend, the annual interest cost of the US government could rise from $1.1 trillion to $1.6 trillion.

To highlight the massive scale of interest expenses, Hartnett listed other major government expenditure items for the fiscal year 2023, such as social security ($1.354 trillion), healthcare ($889 billion), Medicare ($848 billion), and defense ($821 billion). Hartnett expects that if the Federal Reserve does not cut interest rates, interest payments will become the largest expenditure item for the US government by the end of this year.

To control the soaring interest expenses, Hartnett believes that the Federal Reserve will take interest rate reduction measures. He refers to this policy as "Interest Cost Control (ICC)."

In addition to the debt issue, Hartnett briefly mentioned the following points:

The tightening regulation in the technology industry, such as the antitrust lawsuits filed by the US Department of Justice against Apple, the Federal Trade Commission's antitrust lawsuit against Amazon, and the investigations and penalties by the European Union against tech giants.

The seven tech giants in the US stock market have contributed up to 60% of the S&P 500 index's gains in the past year. Investors favor these tech giants for their competitive advantages, but their substantial revenues also make them potential targets for regulatory authorities.

The average tax rate for the US technology industry in the past year was only 15%, much lower than the average tax rate of other companies in the S&P 500 index (21%). Historically, regulation and rising interest rates have often been the catalysts for bull markets and bubble bursts in the technology industry.