Market pricing suggests the Federal Reserve may raise interest rates by nearly 100 basis points within the next year. However, given the persistently high level of US government debt, rate hikes could have a thorny side effect: increasing the US Treasury's interest payments and transferring more revenue to creditors. Could the Fed's policies to combat inflation actually contribute to persistent inflation at the margin? The market currently expects the Federal Reserve to tighten monetary policy by nearly 100 basis points over the next 12 months, roughly equivalent to four more 25-basis-point rate hikes. On the surface, this logic is nothing new: persistently high inflation necessitates further tightening of monetary policy. However, given the current level of US government debt, the transmission mechanism of monetary policy may be far less straightforward than before. Let's look at the flow of funds: Fed rate hikes increase borrowing costs, and the US Treasury gradually refinances maturing debt at higher costs. Even if bond issuance policies successfully suppress long-term yield pressures, the government's overall interest burden will continue to increase. Interest on fiscal expenditures for Washington simultaneously becomes income for another party: every additional dollar of interest paid ultimately translates into returns for holders of US Treasury bonds. These creditors are far more than just individual bond investors. Treasury bonds are widely distributed throughout the institutional financial system—pension portfolios, money market funds, banks, insurance companies, and various investment products all hold them. Part of the increased interest income flows back into the financial markets; another part ultimately flows into households through interest income, pensions, dividends, and investment returns. Therefore, interest rate hikes create two opposing forces: on the one hand, they raise borrowing costs, and on the other hand, they increase the income of holders of interest-bearing assets. This difference becomes increasingly important as government debt continues to balloon. The logic behind traditional monetary tightening is to curb credit expansion, investment, and consumption. However, when interest rate hikes simultaneously lead to a significant increase in government interest payments, the expansion of Treasury revenue flowing to the private sector can, to some extent, offset the restraining effect of tightening policies. The larger the debt stock, the stronger this counter-cyclical effect can be. What follows is a tricky situation. Months later, the Federal Reserve reviews the latest inflation data and finds that price pressures have not fully subsided. Policymakers determine that financial conditions remain too loose and raise interest rates again. The Treasury's debt refinancing costs rise further, government interest payments continue to expand, and more revenue flows to creditors. The "medicine" used to cure the disease becomes more effective, but its unintended side effects are also amplified. This is the potential trap. When public debt is at a sufficiently high level, monetary tightening will no longer simply remove aggregate demand from the economy. Interest rate hikes will punish borrowers while rewarding creditors, and the US government happens to be the world's largest borrower. This could lead to a situation where the Federal Reserve raises interest rates to curb inflation, but in doing so, it creates income flows that actually make inflation more resilient; and when the next round of economic data is reviewed, the conclusion that further interest rate hikes are necessary can only be drawn.