The Relationship Between Continued Fed Rate Hikes and the Risk of US Government Debt

Abstract

The management of interest rates by central banks is a critical aspect of economic policy, and the Federal Reserve (the Fed) holds a central role in guiding the monetary course of the United States. Over the years, the Fed has utilized interest rate adjustments to achieve diverse objectives, from controlling inflation to promoting economic growth. However, the ongoing debate surrounding the Fed's persistent interest rate hikes centers on the potential risks that may arise in relation to the US government debt. This essay delves into the implications of these interest rate hikes on the risk associated with the US government's debt. By examining the impact of increased interest rates on the cost of borrowing, market dynamics, and the challenges of debt refinancing, we can gain insights into the potential ramifications on the fiscal health of the nation. In addition, we will explore counterarguments and potential mitigating measures put forth by policymakers to balance the objectives of economic stability and debt sustainability.