The REAL Reason the Fed Won’t Raise Rates
Ready for the truth?
I hope so.
Because today, I’ll show you the REAL reason the Fed can’t — and won’t! — increase rates as much as everyone is expecting.
Then I’ll show you what this means for your investments.
For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.
The REAL Reason the Fed Won’t Raise Rates
Welcome to Moneyball Economics!
I'm Andrew Zatlin.
This is the second video in our 3-part series about inflation…
In my first video, I explained the REAL reason we’re seeing so much inflation right now.
And today, I’ll show you the REAL reason the Fed can’t — and won’t! — increase rates as much as everyone is expecting.
After that, I’ll start showing you how to profit from what’s about to happen.
That’s a Lot of Debt!
To kick things off, take a look at this chart:
It shows how much debt the U.S. government has taken on.
As you can see, the chart has been trending up for decades.
But when COVID struck, the government borrowed an extra $10 trillion.
As a result, America instantly went from about $20 trillion in debt to $30 trillion.
And as you know, the government has to pay interest on all that debt.
Borrowing More, Paying Less
The thing is, the government has been catching a break recently…
While our total debt has been going up, interest rates have been going down.
And as a result, we’ve been able to borrow more, while paying less in interest!
In fact, we’ve borrowed about 50% more money…
But our overall debt payments during that time have gone down.
But now this situation is at risk of becoming a disaster:
Simply put, all this fear of inflation is forcing the Fed to increase rates.
And if interest rates go up just 1%, the government will need to pay an additional $280 billion a year to service its debt.
A bill like that could end up tipping the whole country into a recession.
Obviously, that’s a major, major problem — the Fed doesn’t want to push us into a recession.
So here’s what I think it’ll do instead…
Be Patient
Take a look at this chart:
This chart shows when the government’s debt matures — in other words, when it “goes away” so the government doesn’t have to pay interest on it.
Well, in 2026, just four years from now, 60% of that debt matures, it goes away.
That’s why the Fed would prefer to do nothing and just sit tight.
Then, four years from now, it could raise rates, and the higher rate would only impact any new debt that it takes on.
Sounds like a good plan, right? Not so fast…
My Crystal Ball Says…
You see, the Fed is stuck.
With inflation running at 7%, its hand is being forced.
It has to raise rates.
So here’s what I believe will happen:
First, yes — it’ll raise rates in March.
But the rate hikes will stop by September.
That’s because, if you raise rates in an election year, you’re going to hit the incumbents too hard.
Second, let’s talk about how much rates will rise.
Well, the Fed needs to come out strong and show it’s in control here.
It needs to say, “We are ON TOP of inflation. We’ve got this.”
Then it needs to come out swinging hard, harder than people are expecting…
With a rate hike of 50 basis points. In other words, half of one percent.
This way, the Fed can make a big statement — then it can lay low for a while and wait it out.
Remember, waiting is a smart strategy. The longer the Fed can wait to raise rates, the less risk there is that higher debt payments will create a recession.
Furthermore, as I showed you last week, the pressure to raise rates will soon start to wane.
The bottom line?
I believe the Fed will come out swinging in March, and then pull back.
How This Impacts You
But how does this affect you as an investor?
Well, in the next couple of months, you should expect rates to go up fast.
So next week, I’ll show you what that means for your investments.
In particular, I’ll show you where you want to be…
And just as importantly, where you don't want to be.
Talk soon.
Zatlin out.
In it to win it,
Moneyball Economics