Good morning.
Do deficits matter? The federal government is spending wildly these days, but until recently, many economists argued that a glut of savings would easily cover the cost by keeping interest rates low. The Congressional Budget Office outlook issued in February predicted that despite the debt explosion, the government’s outlays in interest would actually decline in the next several years, thanks to low rates.
No more. A new estimate out last week updates the February forecast, and predicts higher interest rates. It also shows how sensitive debt service is to interest rate levels: debt service projected for 2026 jumped to $467 billion, up by $106 billion from the February projection.
Fortune’s Shawn Tully says even that estimate is too optimistic. The CBO, he argues, is underestimating both likely spending and the path of interest rates, putting the “U.S. on a treadmill to catastrophe.” You can read his analysis here.
Is he right? The super low rates of the last decade have given analysts some reason to believe we are in a new era of ample capital and perpetually low rates. But new eras eventually come to an end. This one bears watching.
And check out Erika Fry’s piece here on Regeneron’s genetic discovery that could lead to a breakthrough in weight loss treatment.
Other news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Ransomware fallout
The substantial ransomware attack that took place Friday only caused "minimal damage" to American businesses, President Biden said yesterday. A Russia-linked syndicate called REvil has claimed responsibility and demanded $70 million for the restoration of victims' data. Russian government hackers reportedly also attacked the RNC around the same time. White House spokeswoman Jen Psaki: "If the Russian government cannot or will not take action against criminal actors residing in Russia, we will take action, or reserve the right to take action, on our own." Reuters
JEDI defeated
The Pentagon's JEDI Cloud contract, controversially awarded to Microsoft a couple years ago in the time of the Amazon-averse Trump administration, has been scrapped. The Defense Department now says the long-delayed contract "no longer meets the requirements to fill the DoD's capability gaps," and indicated its replacement will be split between the two companies. Fortune
Mayoral race
Eric Adams has narrowly won the Democratic primary for the New York mayoralty, receiving 50.5% of votes to Kathryn Garcia's 49.5%. He won't officially be declared the winner until next week though. Wall Street Journal
Fast-tracking arrivals
British Airways and Virgin Atlantic are to trial fast-track lanes for fully-vaccinated passengers arriving at London's Heathrow airport. The British government wants to stop requiring fully-vaccinated travelers to isolate when arriving from an "amber list" country such as the U.S. or Germany. BBC
AROUND THE WATER COOLER
Chinese crackdown
The selloff in Chinese tech shares, sparked by Beijing's crackdown, may be far from over. "The measures from authorities will keep coming," said Pegasus Fund Managers MD Paul Pong. The Hang Seng Tech Index fell as much as 1.9% today, with Tencent and Meituan being among the biggest losers. Fortune
Ever Given
The Ever Given—the gigantic container vessel that caused global chaos when it got stuck in the Suez Canal for six days in March—is finally set to leave the waterway. It was effectively impounded after that incident, as the Suez Canal Authority wanted over $900 million in compensation. The authority and the ship's owners and insurers have now reached a settlement, reported to total $550 million. A particularly hearty congratulations to the crew, who have been stuck there for more than three months. Fortune
Social surveillance
The European Parliament has approved a bill that will temporarily let social-media companies scan their platforms for child sexual abuse material—and, crucially, private messages that may indicate grooming—without worrying that they are breaking the EU's privacy laws. The law is controversial, with privacy-minded lawmakers saying it threatens encrypted communications, and warning that it won’t survive court challenges. Politico
Bitcoin for diamond
Sotheby's is auctioning a 101.38-carat diamond—worth as much as $15 million—on Friday, and will accept payment in Bitcoin or Ether so as to attract interest from a "younger, digitally native generation, many of whom are in Asia." Fortune
This edition of CEO Daily was edited by David Meyer.
