The Maverick of Wall Street: The Fed Is Losing Control Over the Bond Market
For years, a small group of investors have warned about the total outstanding debt. It doesn’t matter if it’s government debt, consumer debt, or corporate. Its growth requires ever-larger capital to pay the interest on.
Now, with interest rates surging to their highest levels in over 15 years, that debt could prove unsustainable. And it also suggests that the Fed could soon lose any control that it may have over the bond market.
For instance, outstanding credit card debt has now topped $1 trillion. That’s high-interest consumer debt that usually carries double-digit interest rates. Rising credit card debt and declining savings may indicate that today’s consumer spending is unsustainable.
Higher-income households are also reporting that they remain in credit card debt longer. And one top reason for that higher debt is the result of emergency expenses.
Either way, with consumer spending such a huge component of the economy, its potential to stall out could mean trouble for markets. It suggests that stocks may see a further decline, particularly consumer-oriented companies.
Meanwhile, with interest rates high and potentially moving slightly higher, the bond market may not be a bad place to park capital. Earning a risk-free 5 percent right now could offer higher returns than the volatile market, especially on a pullback. Even if the Fed’s control of the bond market seems doubtful right now.