Fed Deficit and Fed Interest Rate

[Henry Clark]

Intentionally waited till after the elections to ask this question. I’m looking for actual info. Anyone jumps on with political agendas I’ll dog them. 

Was watching a YouTube and they mentioned the fed can’t increase the interest rate much further and it will probably go down next year.  Their assumption was based on looking at prior debt levels and increases in Fed rate at the time. 

Their premise is our National debt is so high now that we can’t increase the interest above x%.   We couldn’t both service the interest payments or support our commitments. 

Fed options would be to print money at a level unheard of which would cancel the US dollar as the world fiat currency.  Or if we defaulted on a payment, again the US dollar would lose its standing as the fiat currency.  Our entire financial and economic system would plummet. 

Again can someone reference a podcast, YouTube, or article that addresses the question what is the stopping point on the Fed interest rate subject to these considerations?

Again forget the politics.

Thanks. 

[Taylor L.]

It's critical to remember that the Federal Reserve is different from the Federal Government. The Federal Reserve is expressly not supposed to consider Federal Government debt burden when making interest rate determinations. That's called monetizing debt and it leads to instability, more inflation, and all around bad times. Here's an interesting (but old) article on the topic of debt monetization: https://files.stlouisfed.org/f...

As long as the USD is the prettiest ugly duckling, we'll be okay. When that changes we're in for a rough time. Expect spending cuts & tax increases. It is highly unlikely the Federal Government will default on its debt. Not impossible, but unlikely.

Rising rates, deficit spending, and maturing debt is going to make the interest on the US's debt higher than military spending within the next few years.

If Volcker taught us anything it's that the Fed can absolutely go higher with rates if it wants to.