But what if they don’t raise rates now. Keep them same or even cut a bit so it becomes easier for government to refinance

This is exactly the debate happening right now inside the Fed. And it's a genuinely dangerous idea — here's why:

On the surface it sounds logical

Lower rates → cheaper refinancing → government saves hundreds of billions → debt spiral slows down.

And historically, this has been done. It's called yield curve control — the government/central bank caps interest rates artificially. Japan has done it for decades.

But here's what breaks it

1. Inflation explodes

Right now CPI is already at 3.8% and rising. If the Fed cuts rates while inflation is hot, it's essentially pouring fuel on the fire. Inflation could spiral to 6, 7, 8% — which destroys purchasing power far faster than the interest savings help.

2. Bond market revolt

This is the really dangerous part. Global investors — China, Japan, sovereign wealth funds, pension funds — hold trillions in US Treasuries. If they believe the Fed is manipulating rates to help the government rather than fighting inflation, they start demanding higher rates to compensate for the risk, or they simply sell.

When they sell:

• Bond prices drop
• Yields rise automatically — regardless of what the Fed wants
• The government ends up paying MORE, not less

The market can override the Fed on long-term rates. The Fed only directly controls short-term rates.

3. Dollar collapses

If the Fed cuts while other central banks hold or hike — as is happening now with Europe and others — global capital flows out of dollars into higher-yielding currencies. Dollar weakens sharply, which makes imports more expensive, which feeds more inflation. Vicious cycle.

4. Loss of Fed credibility

The Fed's entire power rests on one thing — the market believing it will prioritize inflation over everything else. The moment markets believe the Fed is secretly financing government debt, that credibility evaporates. Once lost, it's almost impossible to rebuild without extremely painful rate hikes — think Paul Volcker hiking to 20% in 1981 to restore credibility after the 1970s inflation disaster.

The Japan cautionary tale

Japan did exactly this — kept rates near zero for 30 years while the government borrowed massively. The result:

• Economy stagnated for three decades
• Yen collapsed 30-40% recently when rates finally had to rise
• Banks loaded with government bonds suffered massive losses when rates eventually moved
• Still hasn't fully escaped the trap

And Japan had one big advantage the US doesn't — Japanese citizens saved heavily and bought their own government's debt. The US depends heavily on foreign buyers.

The uncomfortable truth

What you're describing — keeping rates artificially low to help government finances — is called fiscal dominance. It's when fiscal policy (government spending) starts dictating monetary policy (interest rates) rather than the other way around.

Most economists consider this one of the most dangerous macroeconomic conditions a country can enter, because:

• It makes inflation structurally permanent
• It gradually destroys the currency
• It ends only through either painful reform or outright crisis

The Fed's impossible position

Raise rates → government debt costs explode

Cut rates → inflation explodes, bond market revolts, dollar collapses

Hold rates → inflation stays elevated, debt keeps growing

There is genuinely no good option — only choices about which pain to take and when. That's why many serious economists believe the US is eventually headed for a forced reckoning, likely triggered by a bond market crisis rather than a deliberate policy choice.