the fed pivot indicator
We are at the point where the fed would usually halt rate hikes and begin easing again
As they gear up for 75bp in a couple weeks, they would be knowingly blowing up the system
This chart is essentially proxy for the acceleration rate of interest expense for the US government, and has been a reliable indicator of fed pivot for 30+ years as the fed has ensured the US doesn't enter a debt death spiral
what is a debt death spiral? It's an increasingly large debt load, with ongoing deficit, that only gets exponentially larger as interest expense increases
The treasury has to issue more bills/notes/bonds to fund interest which drives up supply and can overwhelm demand
thus increasing interest expense even more as yields increase and this spirals out of control, with the only way to make payments being issuing even more treasuries
For the past 33 years the fed has used monetary policy to ensure this spiral doesn't occur
To avoid this, the fed will need to pivot soon otherwise they risk having to do even more easing and monetizing of debt down the road
To keep this line 'inbounds' they need the middle of the curve to fall ~75bp between now and the 24th
Or maybe they'll allow a brief spike above, and given the length of that chart, maybe 'brief' can be a number of months
But as far as what would be normal fed behavior, we're at the tightening limit for interest rates
not my post or idea, but i want to keep a record of it. follow the OG poster @thehappyhawiian
We are at the point where the fed would usually halt rate hikes and begin easing again
As they gear up for 75bp in a couple weeks, they would be knowingly blowing up the system
This chart is essentially proxy for the acceleration rate of interest expense for the US government, and has been a reliable indicator of fed pivot for 30+ years as the fed has ensured the US doesn't enter a debt death spiral
what is a debt death spiral? It's an increasingly large debt load, with ongoing deficit, that only gets exponentially larger as interest expense increases
The treasury has to issue more bills/notes/bonds to fund interest which drives up supply and can overwhelm demand
thus increasing interest expense even more as yields increase and this spirals out of control, with the only way to make payments being issuing even more treasuries
For the past 33 years the fed has used monetary policy to ensure this spiral doesn't occur
To avoid this, the fed will need to pivot soon otherwise they risk having to do even more easing and monetizing of debt down the road
To keep this line 'inbounds' they need the middle of the curve to fall ~75bp between now and the 24th
Or maybe they'll allow a brief spike above, and given the length of that chart, maybe 'brief' can be a number of months
But as far as what would be normal fed behavior, we're at the tightening limit for interest rates
not my post or idea, but i want to keep a record of it. follow the OG poster @thehappyhawiian