Daily Graph 3: Why Warsh’s interest rates hike is ineffective in the context of a high primary deficit
The discussion examines whether interest rate hikes can still tame inflation when the U.S. runs a persistent 2.6% primary deficit. Higher rates suppress demand but also increase government interest payments, creating a liquidity injection to bondholders. The analysis compares today's globally held debt market with the post-WWII era, explores how Treasury issuance shifts toward T-Bills amplify liquidity, and argues that Japan's Treasury sales and Fed backstops may further dilute monetary tighteni