Tags: Rising | rates | economic | growth

WSJ: Rising Rates Could Squelch Economic Growth

By Dan Weil   |   Tuesday, 03 Apr 2012 08:15 AM

U.S. interest rates remain near record lows, and the economy is humming along, with GDP growth totaling 3 percent in the fourth quarter.

But that scenario could change at any time. With short-term interest rates close to zero, they have no place to go but up. And when they finally do rise, they could quickly snuff out the economic recovery.

The Federal Reserve has stated that it still plans to leave rates alone until at least late 2014, but some experts think the economy will expand fast enough to force tightening before then.

Editor's Note: Obama’s Economic ‘Fix’ is In . . .

A rise in rates could be particularly debilitating for the housing market, as the key spring buying season kicks in. "We're coming up to a very sensitive time," Lou Crandall, chief economist at Wrightson ICAP, tells The Wall Street Journal.

Every other sector of the economy that’s sensitive to interest rates would suffer as well, as consumer and corporate borrowing would shrink.

But some experts see the economy in a sweet spot now. "If we [interest rates] move higher from here, it's because the economy is getting better," Ira Jersey, an interest-rate analyst at Credit Suisse, tells The Journal.

And not everyone expects rates to rise soon, despite a recent mild increase.

“The back-up that we’ve seen over the past three or four weeks was not fully justified by what we’re seeing in the data,” Aneta Markowska, an economist at Societe Generale, tells Bloomberg.

Editor's Note: Obama’s Economic ‘Fix’ is In . . .



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