Will The Fed Keep Interest Rates Low For The US Treasury?

Looking at the long-term budget projections from the Congressional Budget Office, which are based on current legislation, a key problem is that interest payments on past borrowing start climbing higher and higher--and as those have overborrowed on their credit cards know all too well, once you are on that interest rate treadmill it's hard to get off. So, will the Federal Reserve help out the US Government by keeping interest rates ultra-low for the foreseeable future? Fed Governor Christopher J. Waller says not in his talk "Treasury–Federal Reserve Cooperation and the Importance of Central Bank Independence" (March 29, 2021, given via webcast at the Peterson Institute for International Economics). Here's Waller: 

Because of the large fiscal deficits and rising federal debt, a narrative has emerged that the Federal Reserve will succumb to pressures (1) to keep interest rates low to help service the debt and (2) to maintain asset purchases to help finance the federal government. My goal today is to definitively put that narrative to rest. It is simply wrong. Monetary policy has not and will not be conducted for these purposes. My colleagues and I will continue to act solely to fulfill our congressionally mandated goals of maximum employment and price stability. The Federal Open Market Committee (FOMC) determines the appropriate monetary policy actions solely to move the economy towards those goals. Deficit financing and debt servicing issues play no role in our policy decisions and never will.

Interestingly, Waller goes back to the previous time when federal debt relative to GDP was hitting all-time highs--just after World War II. he analogy to the large rise in government debt during World War II interests me. In 1941, federal debt held by the public was 41.5% of GDP; by 1946, it had leaped to 106.1% of GDP. The Fed was essentially willing to hand off interest rate policy to the US Treasury during World War II: to put it another way, the Fed was fine with low interest rates as a way of helping to raise funds to win the war. But a few years after World War II, even though the US Treasury would have preferred an ongoing policy of low interest rates with all the accumulated debt, the Fed took back interest rate policy.

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