The US has a large federal deficit that is growing larger every day, a massive trade deficit, and a currency that’s dropping like a rock. Why aren’t foreign investors demanding an interest rate premium to compensate them for present and future currency exchange losses? Why are interest rates still so low?
Well for one, most countries prefer a strong dollar so we can buy all their imports.
A high interest rate set by the Fed would slow our economy, causing the dollar to fall even more, essentially causing foreign investors to lose money.
In effect, this is starting already. The Chinese and Japanese are buying far fewer TBills. There’s still enough unmet domestic demand to buy up the unbought ones at low-ish rates, but that can’t last. Once the Feds need to borrow another trillion dollars then things will happen. The increasing Fed borrowing will dry up available local money (which hurts the economy btw). Then it’s a lenders’ market and rates will go up.