Friday , 29 September 2023

Rising Interest Rates A Ticking Time-bomb For U.S. Economy – Here’s Why

In just a little more than two years, the U.S. Fed Funds Rate jumped by nearly 2%, and one of the worst things for an over-heated and extremely leveraged economy is rising interest rates…[as such], with the recent 2-2.25% interest rate, big trouble is on the horizon,  Also, with higher interest rates, the U.S. Treasury will have to fork out even more money to service its debt.

This version of the original article, written by Steve St. Angelo, has been edited here by for length (…) and clarity ([ ]) to provide a fast & easy read. Visit our Facebook page for all the latest – and best – financial articles!

…As we can see in the chart below, the Federal Funds Rate is the highest it has been in nearly a decade:

Furthermore, each time the Fed hiked interest rates, a recession (shown in the shaded areas) was the result.  When the Fed increased the Funds Rate from 1% in May 2005 to over 5% by 2007, it assisted in the crashing of the mighty U.S. housing bubble and precipitated the investment banking meltdown in 2008.

  • Now, the Fed also plans to increase rates to 2.5% in December so, this should start putting a great deal of pressure on the U.S. economy over the next few years. 
  • Furthermore, the debt service the U.S. Treasury has to pay also increases as rates rise. 
    • For example, the interest expense the U.S. Treasury paid to service the public debt for 2018 jumped to $523 billion, up from $458 billion last year – a 14% increase.
    • What happens when interest rates double to 5%, as they were in 2007?  It means that the U.S. Treasury…[would] have to pay $1.08 trillion just to service its debt…

[That being said], I don’t believe the Fed Funds Rate will get to 5% before the stock market cracks and the economy heads into another recession.  Even if the Fed continues to raise rates, possibly to 3%, it will have to lower them once again when the overheated economy starts to cool down…

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