The Federal Reserve has two primary tools that it may use to fight inflation: halting the printing press and raising interest rates. The first option is unlikely given Treasury Chief Yellen and Fed Chief Powell are operating in lock step. The Fed is limited in its use of the second option. If the Fed were to increase interest rates too sharply the Treasury would have a difficult time servicing its debt (as we wrote last week). Recall that approximately 25% of the $21 Trillion in Public Debt is held in T-Bills and Floating Rate Notes (see our table below), both of which are sensitive to rate changes (the former when rolled over). 52% of the Public Debt is held in T-Notes and only 13% is held in T-Bonds (these figures are as of Feb 28th 2021 and do not include Biden’s $1.9 Trillion package nor the presently discussed Biden “Infrastructure” plan which may cost $3-5 Trillion). Further, the GAO expects for interest payable on Public Debt (currently at $62 Billion), to grow over the long-term as Federal Government expenditures are expected to continue to exceed revenues, primarily due to “entitlements”. Thus, the Fed has limited flexibility on the interest rate front.