Abro Warning: If the U.S. economy falls into recession, the federal budget deficit will still worsen after interest rate cuts

Zhitong
2025.04.17 03:44
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As concerns about a U.S. economic recession grow, Apollo Global's latest analysis shows that even with declining interest rates, the federal budget deficit may still significantly worsen. Apollo's chief economist, Torsten Slok, pointed out that if the U.S. falls into recession, long-term interest rates may decline, which would reduce the government's cost of refinancing existing debt. However, he warned that any potential savings would be overshadowed by broader economic consequences. According to Apollo's estimates, for every two percentage points that interest rates decline, the federal government could save about $500 billion in interest payments annually. But the reality is more complex—historical data shows that recessions typically deepen the U.S. budget deficit by about 4% of GDP due to reduced tax revenues and increased social security spending such as unemployment benefits. In 2025 dollar terms, the agency stated this would result in a staggering $1.3 trillion hit to government finances, more than double the savings from declining interest rates. Slok concluded, "The key takeaway is that it is impossible to improve the budget deficit by creating a recession, as the deterioration of government finances during a recession will be twice the amount saved in interest payments." The economist warned that the short-term benefits of borrowing costs may be offset by long-term fiscal pressures

According to the Zhitong Finance APP, as concerns about a U.S. economic recession intensify, Apollo's latest analysis shows that even with declining interest rates, the federal budget deficit may still significantly worsen.

Apollo's chief economist, Torsten Slok, pointed out that if the U.S. falls into recession, long-term interest rates may decline, which would reduce the government's cost of refinancing existing debt.

However, he warned that any potential savings would be overshadowed by broader economic consequences.

According to Apollo's estimates, for every two percentage points decrease in interest rates, the federal government could save approximately $500 billion in interest expenses annually.

But the reality is more complex—historical data shows that recessions typically deepen the U.S. budget deficit by about 4% of GDP due to reduced tax revenues and increased social security expenditures such as unemployment benefits.

In terms of 2025 dollar value, the agency stated that this would result in a staggering $1.3 trillion impact on government finances, more than twice the amount saved from declining interest rates.

Slok concluded, "The key takeaway is that it is impossible to improve the budget deficit by creating a recession, as the deterioration of government finances during a recession will be twice the amount saved in interest payments."

The economist warned that the short-term benefits of borrowing costs may be offset by long-term fiscal pressures

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