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The Federal Reserve has continued to announce its intention to begin raising its interest rates sometime this spring, yet the market remains skeptical. U.S. government 10 year bonds have risen about 40 basis points in the last two weeks, so the bond market might believe the Fed a little. However, 30 year fixed rate mortgage rates are at or near six month lows and seem to be heading lower. That mortgage lenders are willing to lock in low rates for 30 years suggests they don’t believe the Fed will raise rates, or that higher Fed rates will not lead to any particular increase in inflation or their cost of funds for the foreseeable future. Given that the Fed has been as explicit as ever in its history about its intentions, why are the markets so unsure about interest rates rising? There are 18 trillion reasons.

In the decade since the last time the Federal Reserve started to tighten its monetary policy in June 2004, the national debt has more than doubled. Back then, the national debt stood at $7.3 trillion dollars. Today, it is more than $18.1 trillion. Politicians hate spending money on interest payments on the debt because it does not buy them any votes. That means the government has an enormous incentive to keep interest rates low, and while the Fed is officially independent it is not impervious to government pressure (particularly when the Fed chair hopes to be reappointed).

The effect of Fed policy on the national debt, the deficit, and the federal budget cannot be overestimated. The Fed has, in fact, served as the largest-scale enabler in history, assisting the President and Congress to run a series of the six largest budget deficits the nation has ever seen.

Historically, normal interest rates for U.S. government debt is in the range of 4 to 6%. In fact, before the recent recession both 2 and 10 year government bonds had been between 4.5 and 5.25% for the preceding two years. Rates now are approximately 0.5% for the 2 year note and 2% for the 10 year bond. The difference between the cost of the national debt at current rates and historically average ones is enormous.

For the fiscal year 2014 that ended last September, the federal government paid $430.8 billion in interest on the national debt. Back in 2004 with “only” $7.3 trillion in debt, the interest bill added up to $321.6 billion. With only 40% as much debt, the government was paying 75% as much in interest. If the federal government was currently paying an historically average interest rate on the debt, instead of $431 billion in interest the annual bill would be around $900 billion.

In other words, normal interest rates would double the current federal budget deficit and make any effort to contain the national debt far more difficult.

The Fed has enabled out-of-control federal spending and borrowing in a second way. As part of its quantitative easing policy (commonly known as QE) the Fed has bought up trillions of dollars in government bonds. While the federal government pays the Fed interest on these bonds, the Fed refunds its annual operating profit to the Treasury so essentially the interest on all those bonds is returned to the Treasury.

Because the Fed is basically allowing the government to borrow several trillion dollars interest free, the Fed’s QE programs have saved the government several hundred billion dollars, thereby lowering both the deficit and national debt. For example, in 2014 the Fed refunded $98.7 billion to the Treasury. At least for now the Fed has ended QE, but it has announced no plans to shrink its balance sheet. Thus, the Fed’s subsidy to the government apparently will continue to hold down the deficit for a while longer.

What all this means is that even if rates rise, they won’t rise much. The Washington politicians do not want to see deficits spike by $500 billion per year unless they get to spend that money on programs of their choice. There may be value in reading the Fed’s regular policy statements in order to properly position your investment portfolio, but when they promise higher interest rates I would take that part with a grain of salt.

So if you are a saver weary of the paltry interest you have been earning on bank accounts, certificates of deposit, and many bonds, you probably are looking forward to the Fed raising rates. Unfortunately, there are 18 trillion reasons why rates may never return to normal levels. Given the current economic condition and the potential impact on the deficit, if the Fed did actually put serious effort into raising interest rates, the President would likely tell them to stop.

Wall Street wisdom says never to fight the Fed, but on interest rates we have a battle the markets seem to think they will win.

Follow me on Twitter @DorfmanJeffrey