Some on Wall Street are beginning to challenge the widely accepted economic theory that interest-rate hikes slow down the economy. As the US continues to grow and create new jobs month after month, some experts are considering a fringe idea that higher rates may actually be boosting the economy.
While this view goes against mainstream academic and financial thinking, it’s becoming increasingly difficult for some to ignore the mounting evidence in support of this theory. By key economic measures such as GDP, unemployment, and corporate profits, the current expansion appears as strong or even stronger than when the Federal Reserve first began raising rates.
Federal Reserve Chair Jerome Powell recently announced that policymakers may wait longer than expected to cut interest rates due to higher-than-expected inflation levels. If these price pressures persist, Powell stated that the Fed is prepared to keep interest rates steady for as long as necessary to support the economy.
This new perspective on interest rates challenges long-held beliefs in financial and academic circles. However, with more evidence emerging in support of this theory, some are beginning to entertain the possibility that higher interest rates could be a driving force behind the current economic expansion.