End of the cycle

In this, the first week of May, Fed Chairman Jerome Powell is expected to announce another increase in the national interest rate, which would see it summit the 5% handle for the first time in over 40 years to try and reduce inflation.

Their belief is that inflation—what they describe as a rise in prices—is increased by high levels of borrowing and lending that create rapid economic activity. The logic of raising the interest rate is it dissuades borrowers from expanding economic activity too fast, since 5% is a much higher cost of borrowing than 0%—the rate during the majority of the Trump Administration.

Marketwatch reports that analysts see a 5% – 5.25% range as capable of reducing economic activity enough to bring down prices. However, it’s far more likely that increased lending has been as a result of the rapid increase in the creation of new money and credit, such as one might be able to measure via M2, in the country—pictured here in billions USD.

Created by the Federal Reserve and lent to the US Treasury who used it to pay the government’s expenses, this 22 trillion in new money slowly moved out into the economy as it changed hands, creating a diminution in the value as reflected by the increase in supply.

While it has decreased somewhat over the last fiscal year, the urgency with which Sect. Yellen and Congressional democrats hope to raise the US debt ceiling could see it spike even higher.

Yellen told the House that if the debt ceiling were not to be raised by June 1st, the government would default on some of its obligations.

“After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” she told House Speaker Kevin McCarthy and other bipartisan leaders in a letter.

McCarthy is leading the Republicans to block a “clean” debt ceiling raise by attempting to tie it to spending cuts in the future. Republicans hope Biden, who opposes tying the raise to anything, will come to negotiate with just a month of existing room between the government’s head and the ceiling above.

PICTURED ABOVE: First republic bank, California.

Continue exploring this topic — Federal Reserve— Debt Ceiling Circus: How Much Debt Does the Federal Government Really Have?

Continue exploring this topic — Banking — What Happens Now After the Bank Failures? Fed Between a Rock and a Hard Place