Fed Funds and Inflating The Debt Away

What difference is a 25 or 50 BPS point Fed Funds cut in September going to make for easing macro-economic conditions? Not much.

• Companies that issued debt at 0% that are due to roll over will feel pain regardless of whether Fed Funds is at 3%, 4% or 5%.

• Banks’ investment portfolios will be under water until Fed Funds is back near 0%, which is where the Fed ultimately is going.

• The United States’ $35 Trillion debt load boxes the Fed in, especially given that Congress and the White House do not have the guts for a fiscal austerity program. Therefore, the United States will inflate its way out of its debt problem.

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