Here’s Why The Fed Can’t Raise Interest Rates

Here’s Why The Fed Can’t Raise Interest Rates by Tony Sagami, Mauldin Economics

After raising interest rates in December, the Fed said repeatedly that it intends to raise them gradually, and only if economic growth improves.

In fact, the Fed expects to raise rates even more gradually today than it did three or six months ago because it doesn’t think the US will hit its 2% inflation target until 2018:

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“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”

Interest rates – A 2% inflation rate is just an excuse

I think the Fed is targeting a 2% inflation rate because it offers the best excuse to keep interest rates low. And the reason the Fed wants to keep interest rates low is that the carrying cost of our nearly $19 trillion of national debt would explode if rates moved substantially higher.

More than anybody else, the US government will feel the most pain as the largest borrower of money.

Interest Rates

Zero interest rate policy and QE is more about keeping our debt bubble from exploding.

By the way, read Endgame: The End of the Debt Supercycle and How It Changes Everything by John Mauldin. This book will help you to understand how the Fed enables the Washington DC spendthrifts.

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Markets rise or fall each day, but when reporting the reasons, the financial media rarely provide investors with a complete picture. Tony Sagami shows you the real story behind the week’s market news in his free weekly newsletter, Connecting the Dots.