Dec 2015 rate raise

One doesn’t have to look far to find articles explaining (or speculating) what happens to the economy when interest rates rise. See here, here, here, and here if you’ve managed to avoid it for the past 4 years or so.  For most of 2015 (and 2014, and 2013) the focus has been on when exactly rates will be raised again.  In December the Fed finally pulled the trigger.

To economic observers it was clearly the right time, and perhaps long past due.  Many of the economic indicators we follow were pointing to an economy that was strong enough for us to get out of this period of low interest rates.

But I would argue it was time regardless of the indicators.  Picture a patient sitting in a hospital.  He’s been in a bad car accident, but it was months ago.  His vitals are good and head is in the right place, but he’s only mobile in a chair and reliant on pain medication.  Some argue he needs more time, others think the chair and medication are just a crutch.  They decide it’s time for rehab to start regardless of whether he thinks he’s ready.

This is sort of where our economy is today.  Low rates have gotten us mobile again, just like the chair and drugs.  But as long as we have these crutches, when will we learn to stand on our own feet again?  And isn’t there long-term danger of needing these things just to function?

Anyone who claims to know what the future will hold for the economy is lying or stupid.  The easy bet is that the economy will continue to grow and the Fed can continue to raise rates in 2016 and beyond until the economy shows signs of weakening again.  Few saw the last crisis and few will predict the next recession.  But it’s time to find out if we’re low-rate junkies or we’re ready to move on with out lives.

Be Sociable, Share!
categories: banking, economics, government