The Federal Reserve Board’s Federal Open Market Committee (FOMC) today lowered its benchmark federal rate by 0.50 percentage points, to the 4.75%-5.00% range. This is the first rate cut since March 2020, following which the central bank implemented a series of rate hikes, year-by-year, to supposedly tame high inflation. The Fed likewise indicated that it may slash interest rates again before the end of the year.
This follows the European Central Bank’s cutting its deposit rate by 0.25 percentage points to a range of 3.50% on Sept. 12.
While there is a good deal of Cult of Delphi babbling as to what this means—all worthless—one evident element is that the U.S. federal debt, which in 2020 stood at $29.6 trillion, has as of the second quarter of 2024, zoomed to $35.3 trillion, an increase of $5.7 trillion, in less than four years. For the 2024 fiscal year, the U.S. government must pay $895 billion in interest on the debt; that level is projected to escalate to $1 trillion in fiscal year 2025. The interest on the debt is on a trajectory to go spiraling upwards, and it can more easily be paid—marginally—with lower interest rates. Ominously, the U.S. economy also carries an additional household, business and financial institution debt that totals more than $50 trillion. One aim is to keep this from imploding.
Lowering interest rates will also provide lubrication for the yen and other carry-trades, and the derivatives markets, and keep the world’s speculative casino from collapsing for a week. But it solves nothing, and the reality is that the physical economies of the United States, Germany, Italy, and even Japan are collapsing, measured by the standard of Lyndon LaRouche’s conception of potential relative population density. The world’s central banks oscillate between the yin and yang of central bank rate increases and lowerings, without breaking free of the monetarist system that dooms them.