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.
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.
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.
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.