Tedx wrote:What if, they ask, all those interest-rate hikes the past two years are actually boosting the economy? In other words, maybe the economy isn’t booming despite higher rates but rather because of them.
Rather than keeping on posting articles about this stuff, how about articulating why
you think the argument is a sound one and we can have an actual discussion about it?
To kick things off and practice what I preach I'll start by saying these people are putting the cart before the horse, getting cause and effect mixed up and trying to find evidence (cherry picking) for their confused ideas.
interest rates are rising
because yields are rising
because people are happy to pay more for goods than previously -- that's called "inflation"!!! Interest rates should rise
because companies have pricing power. That's inflation. Some of us complained that interest rises were too little too late; at that time the article-posters were complaining about the ridiculously "high" interest rates and how the central banks were out to screw everyone, now they say raising interest rates is itself inflationary!
"maybe the economy isn’t booming despite higher rates but rather because of them" -- don't be an idiot. The economy is booming. That requires interest rates to be high, and it may require higher rates still. Yet look at rate
expectations which is the crucial measure. Everyone thinks rates are going to fall. I'll say again what I've said before: rates are unlikely to fall significantly until everyone thinks they will continue up. That will be the moment when interest rate expectations can have an effect on spending and the booming economy. But as things stand, if the economy is strong and businesses have pricing power, yet consumers say real interest rates are going to be zero or negative in a year or so, then why wouldn't they be happy to spend and borrow?
That's the consumer/private sector but there is also the government to consider. Governments now have huge inflation-linked liabilities and the article-posters would do well to consider carefully the implications for that on consumer behaviour, prices and the banking sector.
GS
@No gilts holdings, long bank equity and real assets.