MONETARY POLICIES
More importantly for his economic programme, higher interest rates in the US will act like a honeypot for foreign investors . . . . [S]ucking in foreign cash has a price and that is an expensive dollar and worsening trade balance. . . . It might undermine his call for the repatriation of factories to the rust-belt states if goods cost 10% or 20% more to export.”
In its Global F i n a n c i a l Stability report in April, the Int e rna tiona l Monetary Fund issued another dire
p r o j ec t ed interest
is going full steam ahead. Besides raising the fed funds rate to a target of 3.5% by 2020, it is planning to unwind its massive federal securities holdings beginning as early as September. Raising interest rates benefits financial institutions,
FX
in July), and the hardest hit will be the federal government itself. According to a report by Deloitte University Press republished in the Wall Street Journal in September 2016, the government’s interest bill is expected to triple, from $255 billion in 2016 to $830 billion in 2026.
The Fed returns the interest it receives to the Treasury after deducting its costs. That means that if, rather
than
warning: rises
could throw 22% of US c or p or a t ion s into default. As noted on Zero Hedge the same month, “perhaps it was this that Gary Cohn explained to Donald Trump ahead of the president’s recent interview with the WSJ in which he admitted that he suddenly prefers lower interest costs.”
But the Fed was undeterred and
The Fed is acting more like a party to a contract that feels the need to honour its terms, than a central bank that takes the data as it finds them
due to a rise in interest on their excess reserves and net interest margins (the difference between what they charge and what they pay to depositors). But borrowing costs for everyone else will go up (rates on student loans are being raised
du m pi n g its federal securities onto the market, it were to use its q u a n ti ta ti v e easing tool to move the whole federal debt onto its own balance sheet, the government could
save
$830 billion in
interest
annually – nearly enough to fund the president’s trillion dollar infrastructure plan every year, without raising taxes or privatizing public assets.
That is not a pie-in-the-sky idea. FX TRADER MAGAZINE July - September 2017 27
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