Well, personally, I think this is insane. I also believe the stock markets’ reactions were insane, as well.
Today the Fed decided a modest rise in our interest rates was called for. Why? Well, because ……. because they believe our economy if finally getting to solid footing. They’re wrong, but, that’s what they believe. But, let’s examine this thought for a moment. Let’s say what they believe is true. Let’s pretend that our jobs we’re starting to get aren’t McJobs which pay subsistence wages. Let’s pretend the American consumers are finally spending money they don’t have, again. In other words, let’s pretend the ZIRP has finally started to work! ………. So, they decided to fix that.
Why change something one believes has started to work? The official inflation rate (which we all know is hokum) has stayed well below the 2% benchmark. The only reason to increase interest rates is to counter a feared runaway inflationary period. That is, to slow an overheating economy. Even the Fed admits this isn’t the rationale for their raising their interest rates. They’re simply altering something they believe has finally started to work —– that’s imbecility!
For those readers who may not be familiar with the implications of this rate hike …… this is the rate the Fed charges banks to borrow money. Banks, being in business to make money, will in turn raise their rates on borrowing. While the increase is very modest, what this means is that raising capital is now more expensive then what it was yesterday. This means buying a home will be more expensive than it was yesterday, buying car, or buying anything on credit will be more expensive than what it was yesterday. This is especially so for businesses trying to borrow startup or operating capital. …… Oh, btw, all other international competitors are moving in the opposite direction. That is to say, they’re pushing for cheaper and more available capital.
Of course, it’s doubtful the repercussions will be seen in the immediate future, or very noticeable. But, in a couple of years, it will be quantifiable.
While we’re pretending, we may as well pretend a slight increase to the interest rates of the US Treasuries won’t have a devastating impact on our ability to service our debt. Let’s pretend this won’t slow job growth. Let’s pretend this won’t alter the trajectory of consumer spending and business growth. Let’s pretend a stronger dollar (it boosted on today’s news) combined with more expensive capital won’t export business offshore. Unicorns and rainbows for everyone!!!!!