The Impossible Interest Rate Increases

JC CollinsEconomics, Premium POM

Japan QE Tightening & the Trump Xi Jinping Meeting

The idea of the Federal Reserve increasing interest rates was considered by some to be impossible. It was speculated that if interest rates were to climb it would tank the whole system and cause a stock market crash. Though such statements and conclusions make for frightening headlines and increased website traffic the reality of the situation has been far less dramatic.

The semi-logic of such expectations does follow a sort of fundamental pattern. Interest rate increases cause the costs of debt management to escalate. The system has a lot of debt and has been in a growth contraction for some time. In such an environment it is understandable to consider rate increases as a bad idea.

What if the environment changed? How would this cause debt management to become more sustainable and allow for incremental interest rate increases over a period of time?

This is what we are dealing with now as the world continues to change and past assumptions are discarded for new realities. It was widely considered that the Fed couldn’t end QE and it did. It was assumed that the Fed would never begin the process of increasing interest rates and it did. It was said that Trump would never get elected and he did.

Now we are entering into a time period where even Japan is openly talking about ending and tightening Quantitative Easing. It is being considered that the Federal Reserve may even be increasing the frequency and amount of rate increases as job performance increases and the economy in America begins to improve.

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