ECONOMIC REPORT OF THE PRESIDENT

Prospects for Increased
Infrastructure Investment
Low Interest Rates
Investment in America’s infrastructure is arguably as important today
as it has been at any point in recent history given its current state of deterioration.
The financial environment faced by all levels of government provides
even further justification. Yields on 20-year U.S. Treasury bonds as well as
on State and local bonds are at near-historic lows, meaning that government
agencies can borrow funds to finance long-term projects at costs as low as
they have been over the past half-century, as shown in Figure 6-5. This is
true even taking into account expected inflation rates. Long term real interest
rates have moved decidedly lower in past decades (CEA 2015).
Given historically low borrowing costs and the potential upside boosts
to short-run demand and long-run supply, investing in infrastructure would
offer benefits that, according to Federal Reserve Vice Chairman Stanley
Fischer (2015), “under current circumstances would outweigh the costs of
its financing.” Infrastructure investments promote current economic activity,
augment the value of public capital stocks in the long run, and alleviate
the burden on future generations of making needed infrastructure upgrades.
During a period of low growth for an advanced economy, the large boost to
Percent per Annum
16
Figure 6-5
Government Bond Yields, 1965–2015
14
12
10
8
20-Year Treasury
Bond Yield
6
4
2
20-Year State
and Local Bond
Yield
Dec-2015
0
1965 1975 1985 1995 2005 2015
Note: The 20-year Treasury was discontinued on December 31, 1986 and restored on October 1, 1993.
Data for the interim period are calculated as averages of the 10-year Treasury and 30-year Treasury
constant maturity yields.
Source: Federal Reserve Board; Haver Analytics.
The Economic Benefits of Investing in U.S. Infrastructure | 275