The Federal Reserve Will Not Raise The Fed Fund Rates Again

http://trimtabs.com/blog/2012/01/27/trimtabs-expects-fed%E2%80%99s-zero-interest-rate-policy-to-persist-at-least-through-end-of-this-decade-fed-will-have-tough-time-raising-rates-with-federal-debt-almost-seven-times-federal-revenue/

This has nothing to do with what the credit market may demand.....

TrimTabs Expects Fed’s Zero Interest Rate Policy to Persist at Least through End of This Decade. Fed Will Have Tough Time Raising Rates with Federal Debt Almost Seven Times Federal Revenue.

Jan
27

The Federal Open Market Committee (FOMC) stated last Wednesday that it would likely hold the federal funds rate at “exceptionally low levels” at least through late 2014 instead of through mid-2013.  While some investors are excited that the period was stretched to late 2014 instead of mid-2013 or mid-2014, this change came as no surprise to us.

The FOMC also released projections of the course of the fed funds rate.  It is remarkable that every one of the FOMC members expects the fed funds rate to be at least 3.75% over the longer run, yet none expect it to reach that level by the end of 2014.

We have one question for the Fed: how will it ever raise the fed funds rate to 3.75%—or even 3%—over the longer run?

Not only does the U.S. economy face huge structural problems, but the so-called economic recovery has been driven mostly by $100+ billion per month in federal government borrowing.  Federal debt of $15.2 trillion is now almost seven times federal revenue of $2.3 trillion, and there is no political will in Washington to cut expenditures in any meaningful way.

As a result, we do not see how the Fed will be ever raise dictated interest rates.  The government’s interest expense would skyrocket with even a modest increase in its cost of borrowing.  We expect the Fed to maintain its zero interest rate policy at least through the end of this decade.