RE:RE:My worry for the future Hi Dz, thanks for your comments.
I worry that there will be a wide divergence between the interest rate charged to a typical consumer and the rate the government is able to borrow at. Why is their such a divergence between 30 year fixed mortgages and 10 year treasuries? The spread between the two is usually about 150-200 bps apart and today it is a spread of 280 bps. This tells me that the long term cycle is inflationary no matter what the short term Fed funds target is going to be.
Im concerned by the fiscal deficit and the commercial banks' unwillingness to lend to the government because they want to be compensated for higher inflation. The demand is simply not there. In other words, supply of treasuries exceeds demand of treasuries. The Fed will bail them out by buying US treasuries to bring the supply and demand in better balance. You and I don't have that priveledge where we can purchase a product, say a vehicle, and ask the Fed to give us a loan to lower the interest payment on that car. A commercial bank will still charge a high rate on a loan product, especially if they feel the long term inflation rate is trending higher. This is why lenders of 30 year mortgages are charging 7% rates no matter what happens at the front end because the believe inflation is moving higher.
Janet Yellen wants Jay Powell to lower the Fed funds so she can continue to borrow at the front end. This makes it cheaper for the government to borrow but not necessarily cheaper for you and I to purchase a home or take out a loan from a bank.
In a nutshell, Fed funds can come down but 30 year mortgages can continue to remain high due to long term inflation risks. This can be explained away by the fiscal deficit getting worse each year unless they do something about it.