Interest rates should be raised significantly by the Federal Reserve at the earliest possible date. By doing so the fed ensures that the U.S. economy is put on a better track by sacrificing growth for stability. If the current rate is sustained we can expect further volatility and market swings akin to the swings that we see currently in the Chinese economy.
The idea of high interest rates, an order to stabilize the economy is not a new one and was most recently promulgated by Ben Bernanke and the targeted inflation rates school of thought. Bernanke who is one of the world’s foremost economists on the great depression of the 1930’s attempted during the financial crisis of 2008 to stabilize the economy by increasing interest rates. However unlike today the economy had an asset bubble that was centered around a housing market that was built around debt swaps, consumer debt obligations, and leveraged buy outs. The current economy, though, is built principally around the real growth in biotechnology, and information technology companies. the lowering of interest rates during and immediately following crisis spearheaded by Mr. Bernanke, and his successor Janet Yellen have led to lowered expectations of savings accounts which offer little to no interest, and led instead to greater expectations in equity markets and retirement savings vehicles. And though it’s these conditions which led to the subsequent recovery in the stock market, and the economy as a whole, it’s these exact conditions which have led us to the situation we find ourselves in today. By raising interest rates we can add a greater degree of certainty to the gains that consumers have made in their stock portfolios, while simultaneously allowing for an economy that has various amounts of viable savings vehicles which would become more beneficial to the consumer as interest rates increase at banks and the offering rate between banks with them.
By keeping interests rates low during and immediately following the financial crisis Mr. Bernanke gave room to the markets to allow them to grow. Though it was prudent for current chairman Yellen to continue this policy the time has now come for chairman Yellen to consider raising rates an order to stabilize the broader U.S. markets and the American investor with them. A diversified market is a stable market, a stable market, is a healthy market and a healthy market is a prosperous market.