Sunday, November 9, 2014

Brian Romanchuk — High Debt Levels Will Not Prevent Rate Hikes

One theory that I have seen floating around is that the "high" Treasury debt levels will prevent the Fed from raising interest rates. As someone who is in the "secular stagnation" camp(although I dislike the term), I can think of a lot of reasons why interest rates could stay low. But the level of debt is not one of those causes (as my earlier article noted, the high debt level is a consequence of slow growth). That said, the Fed has put itself into a position that it cannot hike rates extremely rapidly without paying a political cost.
Bond Economics
High Debt Levels Will Not Prevent Rate Hikes
Brian Romanchuk

2 comments:

Malmo's Ghost said...

So we're not going the protracted Japanese rate route?

Brian Romanchuk said...

I view it as possible that they do not hike rates, as the economy could weaken. That puts us in "Japan territory". But if it continues to grow at the present pace, the Fed will not be stopped from hiking rates because of interest cost concerns.