It's a tough case to make that higher interest rates are having a substantially negative impact on the economy.
With the economy humming along and the stock market, despite some recent twists and turns, hanging in there pretty well, it's a tough case to sell that higher interest rates are having a substantially negative impact on the economy. "If there's any sense that companies have to start cutting back costs and that leads to labor market trouble, this is the path of a potential problem with rates this high," Krosby said.amid the higher-rate landscape. The broad market, large-cap index is still up 6.3% year to date in the face of a Fed on hold, and 23% above the late October, 2023 low.History tells differing stories about the consequences of a hawkish Fed, both for markets and the economy.
"I don't think that active monetary policy really moves the economy nearly as much as the Federal Reserve thinks it does," said David Kelly, chief global strategist at JPMorgan Asset Management. "Rates too high or too low distort financial markets. That ultimately undermines the productive capacity of the economy in the long run and can lead to bubbles, which destabilizes the economy," he said.
In fact, he expects the Fed's current projection of a"neutral" rate at 2.6% is unrealistic, an idea that is gaining traction on Wall Street. Goldman Sachs, for instance, recently has opined that the neutral rate — neither stimulative nor restrictive — could be as high as 3.5%. Cleveland Fed President Loretta Mester also recently said it's possible that