Monday, December 01, 2025

Will Lower Fed Rates Help US Debt?

It seems that some Intertube Trump-haters think that when the Fed lowers rates, the rates on US bonds will drop.

Wrong.  A thousand times wrong.

US bond interest rates are determined only by bond-buyers, not the Fed.  If a bond buyer thinks he needs more interest to make up for perceived risk, he will refuse to buy the bond until he gets the discount he wants.  That discount makes "the rate."

The Fed has nothing to do with that.  The Fed's rate scheme has only to do with its own lending to banks--which affects rates offered to borrowers for such as cars, personal loans, and--indirectly--mortgages.

One could argue that there is a slight knock-on effect between lowering Fed rates and the US bond market, but finding and measuring that effect is beyond the scope of this post (and we don't really care, anyway.)

 

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