Jan 27, 2023

Are higher interest rates here to stay?

Jan 27, 2023 | Brian's Blog

I’ve heard a number of people say yes.
Let’s look at why they aren’t.

First and foremost,
Raising interest rates is a costly way for the government to fund itself.

In fact,
The government recently hit its debt ceiling, largely thanks to these higher interest rates.
The longer they wait to make a change, the more this debt is going to compound, forcing the government to issue more treasury bonds, meaning even more government debt.

Not to mention — higher interest rates reduce demand as consumers reduce spending.

Reduced demand → Reduced supply → Less work → Layoffs

So if higher rates are so bad,
Why raise them in the first place?

Because it is the best tool the government has to fight inflation.
And that’s exactly what it did.

Make no mistake, we are in an inflationary period,
But the relative value of the dollar compared to other currencies has remained surprisingly high.
Meaning that inflation was properly kept in check.

At the end of the day, this combination of factors means that interest rates WILL be coming back down.
It’s simply a matter of time.

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