(Mises.org) The US Federal Reserve is playing with the idea of raising interest rates, possibly as early as September this year.
After a six-year period of virtually zero interest rates, a ramping up of borrowing costs will certainly have tremendous consequences. It will be like taking away the punch bowl on which all the party fun rests.
Low Central Bank Rates have been Fueling Asset Price Inflation
The current situation has, of course, a history to it. Around the middle of the 1990s, the Fed’s easy monetary policy — that of Chairman Alan Greenspan — ushered in the “New Economy” boom. Generous credit and money expansion resulted in a pumping up of asset prices, in particular stock prices and their valuations.
A Brief History of Low Interest Rates
When this boom-bubble burst, the Fed slashed rates from 6.5 percent in January 2001 to 1 percent in June 2003. It held borrowing costs at this level until June 2004. This easy Fed policy not only halted the slowdown in bank credit and money expansion, it sowed the seeds for an unprecedented credit boom which took off as early as the middle of 2002.[fancy_link color=”#232ee7″ link=”https://mises.org/library/keeping-bubble-boom-going”]Read more[/fancy_link]