Higher Interest Rates: A Good Thing?

Does Janet Yellen really believe higher interest rates would be beneficial?

“If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” Yellen told Bloomberg News after returning from a G-7 meeting in Brussels.

This might have been true a few years ago when the national debt was only $10-15 trillion. Approaching $30 trillion, however, it’s not as clear cut.  The next comment was the really ironic one.

“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade.”

It was Yellen, of course, who with her colleagues at the Fed and former/future Fed chairs, deliberately drove interest rates to historic lows. At no point did they “fight” low interest rates. Why would she say such a thing?

  1. With inflation on the rise, it is becoming more and more expensive to pin interest rates at an absurdly low level.
  2. The Fed has painted itself into a corner, having practically exhausted the lower/longer meme and the obvious bubbles it has blown.
  3. If they can back it up with stock manipulation, shifting the narrative to higher interest rates being good could actually reassure investors – the central banker equivalent of “I meant to fall flat on my face.”

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