I’m a bit allergic to quasi-nefarious Fed-Treasury “partnership” narratives.

There’s something profoundly silly about stating the obvious in conspiratorial terms, and a lot of Fed-Treasury narratives do just that.

The current iteration goes something like this. Demands on fiscal policy are growing, the US government’s debt burden is too, Treasury’s increasingly funding the deficit at the front-end, the Fed controls front-end rates, so the Fed has to cut to keep American’s interest costs under control.

A few things worth noting. First, this entire narrative assumes you buy into the (manifestly false) notion that Treasurys constitute “debt” in the first place and that the US somehow has to source (i.e., borrow) dollars externally. That’s all flat nonsense, but if I insisted on the point, I wouldn’t be able to editorialize around very much. So I traffic in nonsense. Because everybody else refuses not to.

Second (and this is the “stating the obvious” part), of course the Fed’s aware that the trajectory of monetary policy’s a factor in determining borrowing costs for Treasury, and of course the issue comes up from time to time when officials hang out. What else are they going to talk about? Macroprudential concerns, sure. But after that, it’s Treasurys, rates and the like.

Third, the course of monetary policy may eventually turn on considerations about how to facilitate fiscal largesse if it becomes apparent that evolving socioeconomic and geostrategic imperatives demand enormous outlays to stabilize a restive populace and insure against proliferating national security threats. But that’s a big-picture, longer-term project: Think yield-curve control, or even targeted YCC for certain types of debt instruments issued to fund strategic spending paired with “sticky” policy rates to control inflation across the broader economy. In the near-term, though, it’d be a stretch to suggest the first two or three rate cuts from the Fed will be executed first and foremost out of a desire to cap Treasury’s interest bill.

With all of that in mind, BofA’s Michael Hartnett did some math which, if nothing else, is entertaining as far as these kinds of exercises go.

He began as expected: By walking through the usual thinly-veiled critique of US profligacy. The government spent $2.7 trillion over the past five months and is on course to spend $6.7 trillion in FY24, Hartnett wrote, in the latest installment of his popular weekly “Flow Show” series.

The US national debt’s going up by $1 trillion every 100 days, he went on, adding that the total should reach $37 trillion by the time Americans go to the polls in November, when at least 35% of the populace will try to vote away the country’s democracy, oblivious to the irony.

The figure below shows the T-Bill tsunami.

“The US Treasury has aggressively shifted refunding toward <1-year T-Bills, lowering [the] maturity of debt [and] increasing the sensitivity to short rates,” Hartnett said.

That, in turn, “incentiviz[es] the Fed to cut rates,” he remarked, on the way to mapping out a few scenarios.

If rates are unchanged and the trend in yields and debt holds over the next 12 months, America’s annual interest bill rises from $1.1 trillion to $1.6 trillion, according to BofA.

As the figure shows, a few rate cuts would go a long way. Specifically, if the Fed were to cut by 150bps, the situation would “stabiliz[e],” as Hartnett put it.

Ultimately, he intimated that the Fed may have to help Treasury “constrain interest payments” over the next two years by cutting rates to manage an otherwise untenable situation.

“Call it ‘ICC,’ or Interest Cost Control,” Hartnett suggested, before insisting that whatever you want to call it, the Fed “must placate fiscal excess [over the] coming quarters.”

If the suggestion is that the deciding factor in the timing of the Fed’s first rate cuts will be Treasury’s interest burden (as opposed to macro concerns), I call it — and I’ll be diplomatic — unconvincing. And it anyway doesn’t matter. The Fed could always just buy the bills themselves and remit the interest back to Treasury. Once the $133 billion deferred asset‘s “earned away,” that is.