Then, in late 2015, they started a rate-hiking cycle that lasted until the repo market turmoil in late 2019.

After the outbreak of the Covid hysteria in early 2020, the Fed brought interest rates back down to around 0%.

Inflation subsequently hit 40-year highs in 2022, forcing the Fed into another rate-hiking cycle, one of the steepest in history. In just 18 months, the Fed hiked rates from around 0% to over 5%, where they remain today.

The chart below illustrates these last 18 years of monetary policy.

With the soaring interest expense on the federal debt set to become the largest item in the budget, I do not expect the Fed to raise interest rates much more.

For context, the last time inflation was raging, Paul Volcker needed to raise interest rates above 17%. However, that was in the early 1980s, when the US debt-to-GDP ratio was around 30%. Today, it's north of 120% and rising rapidly.

Today's higher debt load and accompanying interest expense are why the Volcker option is not on the table; the growing interest expense could lead to the US government's bankruptcy.

So, I do not expect the Fed to raise interest rates much more, if at all.

In fact, the Fed paused the rate hikes about a year ago (July 2023) and has recently signaled a pivot to easing again.

That means the Fed has effectively given up on bringing price inflation down even though the year-over-year change in the CPI remains around 3.3%, significantly higher than the Fed's target of 2%.