With rates rising, the Fed behind the curve, and Fed credibility in the balance, this has one long-time bank analyst asking the simple question - what about government debt service?
Odeon Capital's veteran bank analyst Dick Bove highlighted that if the Fed moves ahead with aggressive rate hikes, interest payments by the United States could conceivably reach the annual level of $620 billion by year-end 2022 nearly double 2021 levels. It could further balloon to $900 million by 2024. The money for these payments would have to be borrowed in the open market. Additionally, the equity of the Federal Reserve, to the degree it exists, would be wiped out.
"The numbers are concerning," Bove commented. "They imply that the Federal Reserve might not be able to pursue a course as rigorous as the one implied."
As Germany asks itself how it could ever let itself get into its precarious position related to reliance on Russian oil, the Fed should be asking itself a similar question: how it could allow the nation to spin out of control monetarily.
Given the above risks, Bove said the Fed might not be able to institute a significant rate hike program. If that is the case, inflation will remain a severe problem.
By Lon Juricic