MarketWatch's Kellner: Higher Interest Rates Won't Hurt Us

Wednesday, 06 Aug 2014 07:47 AM

By Dan Weil

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Recent signs of economic strength have convinced some analysts that the Federal Reserve will raise interest rates sooner than expected.

Dallas Federal Reserve Bank President Richard Fisher writes in The Wall Street Journal that the Fed should consider lifting rates early next year or sooner depending on the economy's strength.

But Irwin Kellner, MarketWatch's chief economist, says higher rates are no big deal. "In my view, the flap over higher interest rates is much ado about nothing," he writes in an article for MarketWatch. "For one thing, they provide much needed income for savers."

Editor’s Note:
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That's good news for senior citizens and others dependent on fixed income.

"Rising interest rates also encourage the banks to lend," Kellner says. That's because the spread between their funding costs and the interest rates they can charge for loans will widen.

"This means better sales, earnings and dividends — all items that should warm an investor’s heart," Kellner writes.

And unless inflation rages, rates won't climb much anyway, he says. "Once the stock market realizes this, it may even get to like higher rates."

Meanwhile, the Fed's stimulus isn't doing much to benefit Main Street, even as Fed Chair Janet Yellen has stated that this is its goal, says Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management.

The central bank's massive easing program is "boosting the wealth of the wealthy but doing nothing to reduce inequality," he writes in The Wall Street Journal.

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