Not many people realize that the Fed can’t really increase rates any more, because of that debt service. That’s a problem because if inflation comes back with a vengeance, the Fed can’t pull its anti-inflation lever.
It’ll be interesting to see what the Fed does but I’m inclined to think they’ll be dropping rates to near-zero sometime this year like they did in 2020. That would at least somewhat offset increased prices from the tariffs, while applying “expansionary” force on the economy through cheap money. There’s a nonzero chance this tariff game ends up reviving the economy (let’s be real, Biden Admin avoided a “recession” but the economy was/is on life support) by encouraging companies to spend more on expansion while simultaneously suppressing consumer spending. I’m no economist but it’s actually low-key genius… if it works. It probably won’t work.
It’ll be interesting to see what the Fed does but I’m inclined to think they’ll be dropping rates to near-zero sometime this year like they did in 2020. That would at least somewhat offset increased prices from the tariffs, while applying “expansionary” force on the economy through cheap money. There’s a nonzero chance this tariff game ends up reviving the economy (let’s be real, Biden Admin avoided a “recession” but the economy was/is on life support) by encouraging companies to spend more on expansion while simultaneously suppressing consumer spending. I’m no economist but it’s actually low-key genius… if it works. It probably won’t work.