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Federal Reserve Chair Jerome Powell might be done raising interest rates, but that doesn’t mean rates won’t continue to rise.

That’s because the U.S. government has been borrowing a lot of money — $1 trillion last quarter alone — and will continue to need much more, which it will have to obtain at higher rates, thanks to the Fed. That will only further fuel deficits and the debt as investors charge the U.S. government even more to hold Treasury securities.

People are “taking a harder look at the budget in general and the fiscal situation in general and realizing this sort of borrowing is likely to continue in perpetuity,” said Donald Schneider, deputy head of U.S. policy at Piper Sandler.

The central bank is expected to hold rates steady at its meeting today. But markets are increasingly demanding a premium beyond rate increases by the Fed. Subadra Rajappa, head of U.S. rates strategy at Societe Generale, said she doesn’t expect yields to increase much further, but “it’s really hard to know at what point it’s going to stop.”

Wall Street’s reaction could put pressure on President Joe Biden and Democrats in Congress to further reduce deficits, though they’re not even close to reaching a deal with Republicans. And market experts generally cite political dysfunction as a prime reason why they’ve become more pessimistic about the fiscal outlook.

“The Democratic leadership and now GOP leadership in the form of [Donald] Trump have no interest in addressing the actual drivers of our debt,” Schneider said.

The U.S. Treasury’s borrowing plans have been in focus this week after the department announced its latest estimates ($776 billion for the last three months of the year and $816 billion in the first three months of 2024). The updates come as the federal government is again in danger of shutting down this month as Congress tussles over spending.

To be sure, deficit concerns are far from the only factor behind rising yields. Indeed, much of it seems to simply be a mechanical reaction to more supply and fewer buyers — thanks again, in part, to the Fed. With the U.S. central bank shrinking its own holdings of Treasury securities — it held more than $5.7 trillion at its height last year — and less appetite for American debt abroad, domestic investors are the ones buying the bulk of the debt that the U.S. is churning out.

Counterpoint: Bobby Kogan, a former staffer at Biden’s Office of Management and Budget, doesn’t see a reason to feel any more panic about the path of the debt than in previous years (and he’s not worried). He said the data suggests it’s easier now to get the debt under control than it was under former President George W. Bush. The so-called fiscal gap refers to how much deficit reduction you’d have to do each year, as a percentage of GDP, to stabilize the debt. Under Bush, it was estimated to be between 4 percent and 6 percent, whereas now it’s only 2 percent, he said.

“If I were freaking out about debt, I would’ve been freaking out much earlier than six months ago,” said Kogan, now senior director of Federal Budget Policy at the Center for American Progress.

Whether that dynamic holds will depend on how long rates stay high. And the Fed’s moves and the fiscal outlook are inextricably linked. If the central bank holds rates higher for longer, as markets increasingly expect, that means a higher volume of debt. And if rates rise further on U.S. government debt in response to all that supply, that has the effect of slowing economic activity, just as the Fed’s policy does. It could even head off the need for further rate hikes, as many central bank officials have acknowledged.

That puts a focus on the economy’s resilience, which will determine the outlook for inflation and, therefore, how long rates will stay as high as they are now (or higher).

IT’S NOVEMBER — Hope everyone had a happy Halloween! Cute and funny costume pics welcome: [email protected]. In the meantime, send tips to your trusty MM host, Zach: [email protected].

ADP October employment data is out at 8:15 a.m. … September job openings data is out at 10 a.m. … FOMC releases its monetary policy decisions at 2 p.m., followed by Fed Chair Powell’s press conference at 2:30 p.m.

End game — Closing arguments are set to begin today in the trial of fallen crypto star Sam Bankman-Fried. Bloomberg reports that SBF struggled through a tough cross-examination during his final day on the stand Tuesday as prosecutors focused on the last days of FTX, his former crypto exchange. Jurors are expected to begin deliberating this week.

Try again — Declan Harty reports that the Government Accountability Office said Tuesday an SEC bulletin outlining how certain companies should account for cryptocurrencies on their balance sheets needed to be submitted to Congress for review.

The GAO concluded in a report that SEC Staff Accounting Bulletin 121 constituted a rule that should have been subject to congressional review. The bulletin stated that companies tasked with safeguarding crypto assets for customers should be marking those as liabilities.

Bipartisan SEC pushback — More than a dozen House Democrats signed onto a bipartisan letter to SEC Chair Gary Gensler on Tuesday expressing concern over a proposed rule targeting conflicts of interest in the asset-backed securities market. The list of signatories included senior House Financial Services lawmakers on both sides of the aisle.

“Working families are already enduring both a credit crunch and a housing crisis, and this proposed rule may make it even harder for our constituents to make ends meet,” the lawmakers wrote. “While we support the goal of preventing bad actors from taking advantage of conflicts of interest in securitization, as required under Section 621 of the Dodd-Frank Act, the Proposal goes far beyond this congressional mandate by outlawing many ordinary-course activities.”

Senate Banking eyes next steps on Israel — Committee members will attend a classified briefing Thursday as they navigate a response to the Hamas attacks, Chair Sherrod Brown (D-Ohio) told our Eleanor Mueller.

After a hearing last week “on crypto’s involvement, we’re looking at that — [and] we’re looking at potentially more sanctions on non-state actors, and we’re looking at Iran and Russia,” Brown said when asked about legislative developments. He said he didn’t yet know when the next hearing on the topic would be.

Senate Republicans push back on immigration lending guidance — Eleanor reports that Sen. J.D. Vance (R-Ohio) led every Republican on the Senate Banking Committee in urging the CFPB and DOJ to retract recent guidance that warned banks against weighing immigration status as part of loan application.

The agencies released a joint statement Oct. 12 asserting that “unnecessary or overbroad reliance on immigration status in the credit decisioning process, including when that reliance is based on bias, may run afoul” of the Equal Credit Opportunity Act. Banks have been quick to push back on the move.

“The CFPB and DOJ’s joint directive not only flies in the face of responsible lending standards, risk-based pricing, and sound risk management, but also contradicts and rewrites decades worth of guidance from the CFPB and the federal banking regulators—all without an official rulemaking,” the lawmakers write in a letter today to CFPB Director Rohit Chopra and Attorney General Merrick Garland, first reported by Fox News. They also argue it “poses serious risks to financial stability — encouraging financial institutions to ignore critical dispositive factors in their calculation of risk.”

NAR found guilty — Our Katy O’Donnell reports that a federal jury in Kansas City on Tuesday found that the National Association of Realtors and two real estate agencies conspired to inflate home sale commissions and ordered them to pay $1.8 billion in damages.

A spokesperson for NAR said the “matter is not close to being final” and that the trade group would appeal.

First in MM — Seniors who do not have a college degree have more savings than before the pandemic — but are still falling behind those with a college education, according to a new analysis of the Fed’s Survey of Consumer Finances by the think tank Third Way.