Published: May 23, 2025
Introduction: The Rate Cut Fantasy
Financial pundits keep speculating: when will the Federal Reserve finally pivot and work to slash interest rates for home financing? But that pivot isn’t coming anytime soon. While real estate buyers might be waiting for better lending terms from banks influenced by Fed monetary policy, the Fed is playing a much higher-stakes game—preserving the credibility of the U.S. dollar, keeping inflation expectations anchored, and preventing a loss of faith in fiat money itself.
The Debt Trap: Why the Fed is Cornered
The U.S. federal government currently owes over $34 trillion, and that number is growing fast. In an ordinary environment, the Fed could work to lower rates to spur growth. But today, doing so would risk re-igniting inflation—which already hit 9.1% (according to the CPI) in 2022 and still lingers above the Fed’s target.
If inflation returns, so does the risk of a broader loss of confidence in the dollar. To avoid this, the Fed is effectively forced to hold rates high to protect the purchasing power of the currency. But this comes at a cost: every interest rate hike increases the federal government’s debt servicing burden.
The Fiscal Cost of High Rates
With trillions in debt rolling over into higher interest rates, the U.S. is paying dramatically more to service its obligations. For context:
– A 1% rate increase on $34 trillion in debt = $340 billion in extra annual interest.
– At current rates (5%+), interest payments could soon exceed $1 trillion/year.
That’s more than the government spends on defense—and almost as much as it collects in income taxes. High rates are compounding fiscal fragility, but the alternative—cutting rates and risking inflation—is seen as even worse.
The Political Dilemma: Congress and the Debt Ceiling
Rather than reducing spending or increasing taxes meaningfully, Congress keeps raising the debt ceiling. Each time this happens, it signals that the government has no intention of slowing its borrowing. This feeds into inflation fears, and forces the Fed to act as the ‘grown-up in the room’ by keeping monetary policy tight.
In this environment, rate cuts are politically perilous. They would ease borrowing costs—but also confirm that the Fed has no control over inflation. So the Fed is stuck: protect its own credibility, or help Congress delay the reckoning. It’s choosing credibility—for now.
The IRS Expansion: Following the Money
As interest payments balloon and deficits deepen, the Treasury needs more revenue. Enter the IRS. In 2022, Congress approved an $80 billion funding boost for the IRS, enabling the hiring of tens of thousands of new agents and massive expansion of enforcement capabilities.
This isn’t just about closing the ‘tax gap’—it’s about survival. A government with this much debt must extract as much revenue as possible just to cover interest costs. The IRS is the extraction arm of a state that can no longer rely on inflation alone to service its debt.
The Fiat Currency Catch-22
At the heart of this issue is a core paradox: to maintain trust in fiat money, the Fed must fight inflation aggressively. But in doing so, it makes the government’s debt load unmanageable. This is the classic ‘fiscal dominance’ trap—where monetary policy is no longer independent, but must serve fiscal needs.
If the Fed cuts rates too soon:
– The dollar weakens,
– Inflation returns,
– Asset bubbles re-inflate,
– And confidence in the system erodes.
If it holds rates high:
– The Treasury bleeds more cash,
– Congress faces pressure to tax more or spend less,
– And the IRS tightens its grip on enforcement.
Neither option is politically popular—but the Fed knows it must preserve long-term credibility above all else.
Conclusion: No Pivot in Sight
The idea of imminent rate cuts is wishful thinking. The Federal Reserve isn’t managing just the business cycle—it’s managing the survival of the fiat system itself. Until inflation is decisively crushed and fiscal policy becomes sustainable (don’t hold your breath), high interest rates are here to stay.
That means:
– Real estate prices in the mountains will continue to slowly fall as the market corrects,
– Credit will remain tight,
– And government austerity may arrive in the form of audits, not spending cuts.
So next time someone asks when the Fed will pivot—just smile and say, ‘Not until trust in the dollar is bulletproof again.’
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