Some on Wall Street are starting to entertain a fringe economic theory as the US economy continues to grow and create new jobs month after month. They are considering the possibility that the interest-rate hikes over the past two years may actually be boosting the economy rather than hindering it. This idea goes against the mainstream academic and financial thinking, but some experts are finding it hard to ignore the evidence that supports it.
Federal Reserve Chair Jerome Powell recently indicated that policymakers may wait longer than expected to cut interest rates, citing 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.
By key economic measures such as GDP, unemployment, and corporate profits, the current expansion appears to be as strong if not stronger than when the Federal Reserve first began raising rates. This suggests that higher interest rates may be playing a role in driving economic growth rather than slowing it down as traditionally believed.
This new perspective on interest rates and their impact on the economy challenges long-held beliefs in financial and academic circles. However, with the evidence mounting in support of this theory, some are beginning to consider the possibility that higher interest rates could be a driving force behind the current economic expansion.
The idea of higher interest rates being a positive factor for economic growth is not a new concept. In fact, some economists have been arguing for years that central banks should raise interest rates more aggressively in order to stimulate growth rather than stifle it.
One of these economists is John Taylor of Stanford University’s Hoover Institution, who has been advocating for higher interest rates since 2014. According to Taylor, “higher interest rates can help stabilize an economy by reducing inflationary pressures and increasing investment.”
Despite this viewpoint being widely held among economists and investors alike, many still remain skeptical about its effectiveness in practice.
However, with recent data showing that key economic indicators such as GDP growth rate and unemployment rate remain strong despite rising interest rates over two years now,
