The Federal Reserve is saving the US billions by keeping interest rates low

Janet Yellen is taking her time with the inevitable rate hike, and taxpayers may need to thank her for it.

The Congressional Budget Office released its 2015 Long-Term Budget Outlook on Tuesday, in which forecasts for interest expenses on the federal debt were further reduced.

In the report, the CBO estimates the real interest rate on a 10-year Treasury note to be 2.3%, down from 2.5% in the 2014 Outlook and 3% in 2013.

The Federal Reserve sets the Federal Funds Rate, which effectively dictates all other interest rates, including the rate that the federal government pays to its creditors.

So, by taking a rate hike slowly, the Fed is helping to trim the interest costs paid by the federal government. A .2% decrease might not seem like a lot, but for a country with more than $US18 trillion in outstanding government debt, the savings are enormous.

The CBO also estimated that net federal spending on interest will be 1.5% of GDP next year, down from the 1.7% predicted in 2014.

According to Bloomberg, this adjustment represents about $US37 billion in savings for taxpayers.

To put that in perspective, the Fed might be saving taxpayers enough money to fund the construction of three more aircraft carriers identical to the USS Gerald R. Ford, which is expected to come in at $US12.9 billion.

The chart below from the CBO shows just how much interest rates can affect the federal debt.

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