Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy
Why the Fed Watches the Budget Deficit
On this episode of The Macro Memo, Lucas and Luna examine a paradox: inflation is cooling, the Fed is on hold, and yet the yield curve is steepening as the ten-year Treasury yield climbs. The culprit, they argue, is the exploding U.S. budget deficit, which surged to its highest level since March 2021 in July. With nominal GDP at $32.5 trillion and the government borrowing heavily, bond investors are demanding a risk premium. Lucas explains how deficit-driven supply is pushing long-term yields up even as short-term rates stay flat, and why the Fed—despite its independence—can't ignore…
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