Once the hammer drops, the stock market, bond market, gold, and Bitcoin are all gonna crash. But don't panic, this rate hike is definitely not happening. Why?
On the surface, all signals are pointing towards a rate hike:
In March, US inflation jumped from 2.8% to 3.5%;
A quarter of the Fed's board is openly calling to remove any mention of rate cuts; the only one still pushing for cuts, Milan, is about to resign.
What's even crazier is that the 2-year US Treasury yield has already broken through 4%, sitting right at the top of the Fed's policy rate range. What does this mean? The bond market has basically preemptively 'hiked' rates for Waller.
But if you think about it, can Waller really raise rates? The answer is probably — no way. With US Treasury yields climbing and tech stock valuations already super sensitive, if the Fed were to throw another 'rate hike' into the mix, the global market would go into meltdown.
When deciding whether to raise rates, you can't just look at how high inflation is; you need to understand the root cause of this inflation wave. The inflation spike in 2022 was rooted in excessive money printing and overheating demand, so raising rates worked then. But in 2026, the root cause is more complex.
It's not just simple overheating demand; it's being propped up by three things:
First, rising oil prices and the Middle East situation are pushing energy prices back up.
Second, tariffs are up, and import prices are being artificially inflated.
Third, the government is still spending money; the fiscal deficit hasn't really been contained.
It's all about the supply side issues; there's no overheating demand causing this. If we raise interest rates now, what we might suppress isn't inflation, but rather consumption, employment, and corporate investment. If those things crash first, inflation won't have gone down, and a recession will hit us sooner.
What's worse is that U.S. Treasury bonds can't withstand higher rates anymore. The Hoover Institution did the math: U.S. debt has reached $39 trillion, exceeding GNP, with debt pressure nearing historical extremes. For every 1% rate hike, we have to pay an extra $280 billion in interest per year—who can handle that?
Plus, November is midterm election time. Raising rates now, in our terms, would be like giving Trump a 'black eye'. Even if the 'wise king' could care less about losing face, he can't play games with his political life.
So, raise interest rates? Impossible. Setting aside the current noise and chaos, the fundamental issue is—interest rates can't go up, and they can't go down either, inflation isn't budging, so where is this machine headed? That's the real deadlock for the Fed. Walsh can change the Fed's style, but he can't alter its destiny of flooding the market with liquidity. Raising rates is just a show, while the real conclusion is massive liquidity.