By Haddon Libby

On January 31st, Federal Reserve Chairman Jerome Powell stated that the Fed would not be reducing the Fed Funds rate in March as some had hoped for.  Given that the US economy was growing at a 3% annualized rate during the 4th quarter, conditions were not supportive of a rate decrease. Unemployment has been under 4% for the longest period in over fifty years with inflation expected to drop below the Fed’s target level of 2% at some time over the next two quarters.

The Fed has three rate cuts in its projections for 2024.  There is a chance that one cut may happen in June with another in September and a third in December.  If the economy stays strong with lower inflation and strong employment, expect the Fed to delay rate decreases.

While rate hikes may be over, the Fed is continuing with Quantitative Tightening as it looks to reduce its balance sheet while pulling excess cash out of the monetary system.  Debt held by the Fed peaked at just under $9 trillion at the end of the first quarter 2022.  At year-end, the Fed held $7.8 trillion in bonds with reductions targeting a $6 trillion level.  For reference, the Fed balance sheet was $3.8 billion in September 2019 and ballooned to $7.2 trillion by May 2020 when COVID had most of the world shut down.


Federal debt has grown from $6 trillion at the start of the Bush administration in 2000 to its current $34 trillion level.  This equates to slightly more than $100,000 for every US resident with a federal deficit of $1.7 trillion annually ($5,000/person).  Where federal debt equated to 59% of GDP in 2000, it now is 125% of GDP despite GDP doubling over the period.  For comparison, China has a debt to GDP level of 335%, the European Union 93% and Japan 226%.

Of the $28 trillion in new federal debt issued over the last 20 years, $4.7 trillion relates to the COVID shutdown.  Of the remaining $23.3 trillion, 17% was incurred by Bush, Trump, or Biden administrations with 30% during Obama’s time in office.  Another 17% is related to COVID during the Trump and Biden administrations.

During Bush’s eight years in office, interest payments nearly doubled from roughly $240 billion to $440 billion.  During Obama’s eight-year term, interest payments nearly doubled again to $800 billion.  Whether it was COVID, Trump or Biden, each added another $200 billion in annual interest payments.

A common misnomer is that China holds a lot of US debt.  25% of our federal debt is held by foreign governments with Japan holding the most at $1.1 trillion followed by China at $770 billion, United Kingdom at $700 billion, Luxembourg $345 billion, Cayman Islands $325 billion, Ireland $300 billion, Belgium $285 billion, and Canada $280 billion.  Of the remaining $24 trillion, the Fed holds nearly $8 trillion while intragovernmental agencies including Social Security hold a similar amount.  This means that $8 trillion is held by US companies or individuals.

For all the future challenges that high debt levels can create, the United States remains stronger than most due to our vibrant and growing economy that is built on a culture of innovation versus China which is based on replication and the E.U. that is often referred to as a culture of regulation.  If GDP continues to grow at the same rate as the last twenty years, current debt levels are manageable.

A key takeaway for you and me is that cash is a depreciating asset with buying power that declines each year.  As such, we need to put our cash resources to work in appreciating assets like real estate, stocks, bonds.

Haddon Libby is the Founder and Chief Investment Officer of Winslow Drake Investment Management, a local RIA firm that performs to the Fiduciary Standard of Care.  To learn more about our award-winning services, please visit or give me a call.