Why Is A Modest Rate Hike So Exciting ?
Several commentators and opinion articles in the financial press have been explaining why a modest rate hike should not be a big deal. They question why everyone is so excited about this potential rate hike.
The reason is simple. We’d like to know if the economy truly is strong enough to start returning to normal. Nothing is normal right now. There hasn’t been a rate hike since 2006. Since 2008 the funds rate has been essentially zero. That drastic measure still was not enough to keep the ship afloat and so quantitative easing was engaged in multiple times. In the most basic sense the economy has been skimming along the treetop and we’d like to think the motor on this crop duster has recovered enough to get us back up into the air.
There are many good signs about the economy. The largest lingering question is likely about China. How significant is the malaise and how substantial is the cooking of the books to make the Party look good.
If we can raise rates, if we can do it repeatedly, and still maintain our current economic situation then it will truly be a very encouraging sign. If it turns out we have to push the increase out then it means we are still running on fumes.