Why Higher Interest Rates Will Not Lead To Recession

It’s amazing all the panic I see when reading the news pertaining to higher interest rates.  Mortgage rates have gone up about 0.5% in the last few months, and stock markets have lately been hit by fears that the Fed will not only taper off Quantitative Easing, but will eventually raise the discount rate, which is pretty much the standard rate that many lending activities are based from.

The naysayers proclaim things like:

“Higher mortgage rates are going to kill the housing market recovery.”
“Higher interest rates will pop the housing bubble.”
“Higher lending costs will lead to recession.”

I’m sure you get the point.

Personally, I’m not buying it.

Demand fell.  Let’s look back to the reason that rates fell to the point where they did?  It was the economy.  Basically, companies and people stopped borrowing as the housing bubble popped, people were losing their jobs, and wealth was disappearing in the stock market crash.  All of that meant that credit was simply not in demand, which by the economic laws of supply and demand meant that rates had nowhere to go but down.

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