Will The Fed Raise Rates To 9 Percent?

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In this video, I discuss why central banks sometimes target positive real rates, and whether the Fed will be able to hike to 9% in order to get Fed Funds above the CPI inflation rate.

The answer is a definite No, due to high debt levels in the economy.

9% Fed Funds would mean much, much higher mortgage rates, car loan rates, credit card rates, as well as much higher financing costs for the US government, which would need to be offset by the Fed buying even more government debt.

Jerome Powell is in a very different position from Paul Volcker. Chances are that the Fed will need to pivot by August or September 2022, much sooner than market participants are currently expecting.

Not investment advice! Consult a financial advisor.

Fed Funds rate:
https://en.wikipedia.org/wiki/Federal_funds_rate

Fed Funds rate probabilities:
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Chart of Fed Funds effective rate over time:
https://fred.stlouisfed.org/series/FEDFUNDS

Historical chart of 30-year fixed rate mortgages:
https://fred.stlouisfed.org/series/MORTGAGE30US

Mortgage-Backed Securities held by the Fed:
https://fred.stlouisfed.org/series/WSHOMCB

Fed's total balance sheet:
https://fred.stlouisfed.org/series/WALCL

US debt clock:
https://www.usdebtclock.org/

Average Treasury maturity:
https://data.nasdaq.com/data/USTREASURY/AVMAT-average-maturity-of-total-outstanding-treasury-marketable-securities

Powell will be the next Volcker?
https://www.nytimes.com/2022/03/14/business/economy/powell-fed-inflation-volcker.html

Unlikely, given current debt/GDP:
https://fred.stlouisfed.org/series/GFDEGDQ188S

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#fed
#interestrates
#monetarypolicy

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