May 8, 2017

Why Is The Fed Willing To Keep Raising Rates?

One of the reasons this might be the case is because the Federal Reserve is more concerned about having some ammunition to fight the next recession rather than simply postponing the onset, meaning that they want to get interest rates further above zero before the recession officially begins so that once it's here they have more room to cut interest rates.

But also I think another reason that the Fed has been more willing to raise interest rates has to do with the action in the US stock market. I thought that the Federal Reserve would be reluctant to raise interest rates for fear of how the higher rates might impact the stock market but it seems like the stock market has found another prop and is no longer simply relying on cheap money. It's now also relying on hope and optimism surrounding the election of Donald Trump and the idea that somehow he is going to make America great again which includes making the stock market great again with deregulation and tax cuts and all sorts of economic stimulus.

So I think because of this the Fed may feel that it doesn't have to provide as much support because the stock market is rallying in the face of these rate hikes.

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