The Fed would only cut rates to help the U.S. service its soaring debt, fund manager says

The
only
reason
the
Federal
Reserve
might
be
tempted
to
cut
rates
would
be
to
help
the
U.S.
cover
interest
payments
for
the
national
debt,
according
to
fund
manager
Freddie
Lait.

His
comments
come
ahead
of
the

Federal
Reserve’s
monetary
policy
decision
on
Wednesday,
which
could
shed
some
light
on
the
U.S.
central
bank’s
rate
trajectory.
The
Fed
is
widely
expected
to
keep
its
benchmark
overnight
borrowing
rate
in
a
range
between
5.25%-5.5%.

Traders
are
currently
only
pricing
in
about
a
50%
chance
of
a
Fed
rate
cut
taking
place
as
early
as
September
and
expect
just
one
quarter-percentage-point
reduction
by
the
end
of
the
year,
according
to
the

CME
FedWatch
Tool.

Speaking
to
CNBC’s “Squawk
Box
Europe”
on
Wednesday,
Latitude
Investment
Management’s
Lait
said
he
believed
the
current
level
of
interest
rates
was “perfectly
fine”
to
balance
the
inflation
and
growth
outlook
for
the
world’s
largest
economy.

“I
think
it
is
for
the
birds
to
think
that
in
a
world
where
inflation
is
bottoming,
and
in
some
cases
turning
up,
and
there’s
early
signs
of
life,
partially
due
to
the
strong
economy
with
massive
government
stimulus
behind
it,
that
they
are
going
to
be
cutting
in
any
meaningful
way,”
Lait
said.

“From
the
way
we
have
thought
about
it
for
the
last
15
years,
and
I
think
for
longer
too,
there
is
no
economic
rationale
for
cutting.
The
reason
they
might
cut
is
because
the
U.S.
government
can’t
afford
[them
not
doing]
it
—
and
that’s
a
much
scarier
reason
to
have
to
cut,”
he
added.

A
spokesperson
for
the
Federal
Reserve
declined
to
comment.

The
U.S.
government
is
paying
more
to
service
its

ballooning
debt
after
a
period
of
rapid
interest
rate
hikes,
tax
cuts,
and
massive
stimulus
programs
designed
to
support
the
economy
during
the
Covid-19
pandemic.

A
recent

analysis
by
the
Congressional
Budget
Office
showed
that
U.S.
federal
spending
on
interest
payments
is
expected
to
climb
to
$870
billion
this
year.
The
forecast
reflects
a
32%
jump
from
last
year’s
interest
expense
of
$659
billion.

Lait
said
that “exponential”
growth
in
government
spending
on
U.S.
debt
would
likely
pose
a
problem
for
whoever
wins
the
November
presidential
election.

“The
facts
are
there
now.
You
have
borrowed
the
money.
You’re
running
a
fiscal
deficit
of
5,
6%.
Either
you
withdraw
all
the
stimulus
programs
and
that
still
takes
a
wind
down
period,
which
is
going
to
be
a
real
challenge
especially
in
somewhere
like
America
where
they
are
sort
of
legislated,
or
you
have
to
borrow
that
money.”

Asked
whether
he
believed
the
U.S.
government
debt
load
may
be
becoming
unattractive
for
a
number
of
key
international
investors,
Lait
replied, “Yes
and
the
solution
would
either
be
to
live
with
much
higher
yields
or
[with]
much
lower
government
spending,
because
that
would
reduce
issuance
and
solve
the
problem
a
different
way.”

He
added, “It’s
a
little
bit
conspiracy
theory-esque
because
the
level
of
debt
has
never
mattered.
Debt
to
GDP
has
gone
up
every
year
since
the
war.
And
so,
it’s
gone
up
like
a
straight
line
and
the
markets
have
bull
and
bear
markets.”

However,
Lait
said
the
level
of
U.S.
national
debt
was
not
the
point.

“It’s
kind
of
the
changes
in
it
and
the
construction
of
it.
And
I
think
it
is
just
the
growth
in
those
interest
payments
are
really
quite
staggering,”
he
said.