Interest Rates Are Rising for All the Right Reasons

Here’s what the bond market is really telling us about the economic future.

Comments: 164

  1. I wouldn't necessarily describe the Fed's actions in raising interest rates as "plowing ahead", but more like tip-toeing ahead as slowly as possible as compared to past rate-rising periods. The Fed formally meets 8 times per year, or a total of 24 times since it first raised rates by 0.25 points in Dec. 2015. It has raised rates by 0.25 points, from near zero, (for a total of 2 points) 8 times over a close to 3-year period. In the past, the Fed typically raised rates by 0.25 points at each of its 8 annual meetings. Had that been the case, the Fed funds rate would have risen 6 points by now as opposed to 2 points. The Fed's rate-raising regimen has been extremely cautious and tepid at best. Alan Greenspan famously opined that it was a "conundrum" why the yield on the 10-year treasury bond didn't rise in the mid-1990s when the Fed was furiously raising its Fed funds rate. We have learned over the past 20 years that our treasury bill/bond market has become the world's depositary for "flights of safety", with vast amounts of our bonds having been bought by Japan, China and the Saudis. The Chinese could sink our treasury bond market and send the stock market and our economy into a tailspin by "dumping" treasury bonds at their whim. Perhaps that is what has been happening since the end of August as the 10-year bond yield has risen to near (the still meek) 3.25%. Don't underestimate China's reactions vis-a-vis Trump's disastrous tariff moves. The stock market didn't yesterday.

  2. “Tariff wars are easy to win” - DJT

  3. @marty If only the "marketplace" could get rid of "failing" Trump and his failing, collaborating GOP...the next best thing is to vote on November 6.

  4. @marty it’s not so easy for China to dump US treasury without hurting itself in the process. Please read the other NYT article on the topic.

  5. I am glad to see the FED raise interest rates to prevent another financial crisis. The ECB is making a big mistake in following the easy money policy too long. Since financial regulation has been relaxed, rising interest rates serve to control the bad lending practices that lead to financial crisis.

  6. @Ron what you're stating is far too macro/generic to "control" the "bad" lending. Also, keep in mind credit card debt and personal loans are at record/near record highs according to the Commerce Dept. and another State seem to be applauding us to pile on more consumer/hhld the "cost" of our waning middle class and lower class segments and discretionary to essential expenditures...and with nearly 70% reliance on GDB via consumer spend..your points aren't realistic for long term financial health...specific to our WHOLE nation...they're rose-colored for the carnivorous meat eaters..e.g. Wall St..etc.

  7. That's great news for most banks. That's great news for most credit card companies. That's great news for most payday lenders. That's great news for most used car dealers. That's great news for most loan sharks. But with debt being the sole driver of the recent 'boom' from the Fed on down, not so much for everybody else.

  8. @Richard McGlauglin The rising rates are also good for investors, particularly those that are risk averse such as retirees and those approaching retirement. One could argue that interest rates have been too low for years and that more moderate rates are better for the economy as a whole. My first house purchase, in 1985, came along with a mortgage rate of 12%. Bond rates were in the high teens and higher. No one wants to see a return to those days but expecting a fair rate of return for the risk of loaning ones money is not an unreasonable thing to ask.

  9. Richard Mclaughlin's comment was "That's great news for most loan sharks ....not so much for everybody else." I disagree. It's also good news for folks who are savers rather than debtors. And I suspect that many folks, like me, want to avoid placing their savings in Wall Street's rigged casino. The nominal interest rates of the past decades have, in effect, forced many to invest in Wall Street. Now that CD and bond rates are rising we have a choice.

  10. @Richard Mclaughlin: Well said!

  11. To make payroll, so to speak, our government needs the wider world to buy more T paper at lower rates so we can muddle on waiting for Christmas and Easter, Santa and the Bunny. Mr. Musk reacting to short sellers may have been a portent. We will get what we need. Then stability will restore itself. The I.M.F. would visit and tell us to raise taxes and cut payroll. That will not happen. Inflation will happen. A slow descent into depression is under way. Paul Volker to the emergency room - STAT.

  12. Very spot on, what's your gauge on time with "slow" descent to escalate into a depression mode...2020? @JVM

  13. I agree re 2020. Just in time to blame it on the newly elected D President.

  14. Thank you for pointing out that long term rates are not set by the Fed, but by the private investor market appetite. The rising long term rates instead of an inverted yield curve is indeed a welcome sign as it means investors still see a longer economic expansion. Long term rates are still extremely low by historical standards. As long as long term rates moderate upward gradually to more normal ranges that would indicate expansion more so than inflation. Stocks also perform well in such an environment.

  15. @Shend Inflation is already running above the Fed 2% target and these rate increases along with other factors like oil moving to 80 dollars a barrel, collateral damage from Trump's trade wars, and upward pressure on wages from low unemployment, are all likely to push it up further.

  16. @Shend Historically, it has been the market that has set long term rates, as the Fed implemented interest rate policies on short term rates. However, for the past decade, the Fed has taken a big position in long term bonds through its QE programs, which took trillions of debt off the open market. One can argue that it was successful in supporting the US economy, but it also clearly suppressed long term rates. As it unwinds this program, it will lead to increasing long term rates.

  17. Whether it's good news is a highly suspect contention. Household debt is around $12.5 trillion and even if we cut out the fixed rate mortgages this is going to put an additional burden on household budgets. It's also going to cost businesses more to borrow. It's also questionable (as Keynes pointed out) whether directing investment into debt (which is now more attractive) as against other asset classes is desirable.

  18. Somehow you forgot to mention the explosion of borrowers around the world, including the U.S. government's record issuance of Treasuries. Higher demand for loanable funds equates to higher interest rates. Debt explosion means an increased chance of a debt implosion (financial crisis and recession). Yes, tell all of the American people and firms with huge piles of debt that higher interest rates are good for them.

  19. @tanstaafl On the contrary - I think that people with "huge piles of debt", especially corporate take-over artists that replace equity with debt, will be getting a message that their leverage is risky.

  20. This sounds like conventional economics. But the problem is the author doesn't explain, for instance, why higher bind yields equate to confidence in the economic future. I'd like am explanation

  21. @Rhporter You can't fit intro economics into an OpEd. When long term rates are low, it expresses an expectation that long term growth will be low. Low growth means low interest rates (generally.) If you think long term growth will be higher, you will demand a higher rate of return to lend money. Else you would just park your money in a short term bond and wait for rates to rise when future growth is high.

  22. @Rhporter If you had $100 and believed the future looked good for economic growth, would you want to lock up your $100 in a US Treasury bond that pays you 2% interest per year for the next 10 years? Or, would you put that money in a stock fund that pays 2% in dividends per year and you think will go up over the next 10 years? The bond market is competing for your $100. If you think the future is looking bright for stocks, you might demand 2.5% or 3% or more to compensate you for locking your money up in a bond for the next 10 years. Conversely, if you think the future is looking dim, 2% per year with a guarantee you'll get that $100 back in 10 years might seem attractive.

  23. This is an intelligent op ed column, a distinct rarity on these pages. The writer correctly understands that the United States is dealing with an economic environment not known here in the past couple of decades, and most pronounced, during the Obama administration. We have real prosperity! So it is totally reasonable to expect interest rates to return to traditional historic levels, to offer savers--for a change long hoped for--a reasonable alternative to speculation or investment where adequate return is greater than inflation. The collapsing economy under Bush II and the lousy economy under Obama--with interest rates essentially at zero for his whole administration--represented a terrible disaster of free enterprise being restrained and crushed by over-regulation and harsh treatment. Is the economy strong enough finally to handle higher rates? YES. The Trump prosperity is proving incredibly strong. If he also convinces China to renegotiate tariff issues (as he already did Canada, Mexico, South Korea and seemingly most of Europe) the effect will be that much more impressive, and interest rates will be justified in going even higher. It is a lesson investors are just relearning.

  24. @Micoz"The collapsing economy under Bush II .." Do you mean after 9-11?

  25. low low interest rates crushing business??? you forget the hole Bush and company left us in. environmental regulation prevents corporations from dumping on the rest of us without paying for thectrue cost. it encourages the delopment of sustainable and cleaner technologies that are the future and will also help keep America competitive. we have now a short term sugar high, unless Teumo and co. are gine aoon it will be "a disaster" for our country-- economically, politically, and ethically

  26. @Micoz The current macro environment exists BECAUSE the Obama administration was effective in its response to the recession. And keep in mind his response was hampered by the republican congress. It could have been stronger, if not for the Tea Party. Just look at the statistics. Most of the growth of the labor market, now at 96 months of job creation, occurred during the previous administration (the current administration can only claim 19 of those months). If you look at job creation in the last 19 months of Obama, you'll see his numbers are slightly better. Same for positive GDP growth. Yes it was slow, but isn't that because of the severity of the recession? That wasn't Obama's fault. Credit was severely contracted, causing an effective decline in money supply. When was the last time that happened? Interest rates may not have fully adjusted. Changes occur when new information comes to light. Let's see what happens when options for substitutes, necessary for a well functioning and competitive economy, start to dwindle. Then we'll see how effective the current policies are. My guess is inflation, and perhaps competitiveness will diminish (less net investment, etc). I hope I am wrong, but I am not so optimistic.

  27. There’s also a simple supply and demand story, more government deficits increase the supply of bonds while the trade war makes it harder for foreigners to earn dollars so the demand for bonds is shrinking, leading to lower priced bonds (meaning higher interest rates). If the rise in interest rates were a sign of economic optimism, we’d see stocks going up too (like they did when interest rates increased in the 90s and 2000s).

  28. Retirees and other risk averse investors are surely happy with rising interest rates. For years now their investment portfolios have had to endure either much diminished returns on investment or far more risk than they are comfortable with in order to maintain ROI. The American public have become so accustomed to low rates that we accept it as normal whereas it is not. A balanced, moderate rate is, in the long run more desirable for extended economic growth.

  29. @Rob D How have your fixed income (bond) portfolios been doing for the last 4 years? Unless you went hard into municipal bonds or high risk corporates, I can assure you that you have lost money. The real problem is that bond PORTFOLIOS, i.e. the funds that 99% of retail and retirement investors use, do not respond well to these shifts. Thanks to target date retirement funds your assets shift to a bond heavy allocation as you age so anyone 55+ has had a lackluster performance since early 2014. This occurs because as new bonds are issued at higher rates, the older lower rate bonds drop in value (yields rising means they are discounted on price). Thus, even though your bond still pays a coupon of 2.5%, its selling at a discount so your portfolio's value has decreased. Check your portfolio's 5 year return then let me know how great the hawkish Fed...

  30. This is a very one sided argumentation. Considering all the household debt and accumulated debt in many countries that borrowed heavily in dollars, rising interest rates will certainly precipitate a debt crisis and recession or even crash of the world economy.

  31. @heinrich zwahlen Possibly, that can happen. But, for anyone prudent enough to pay attention, QE and its near-zero rates could only go on for so long. An interest rate rise was inevitable, and had been expected for some time. Overuse of cheap credit does often lead to bubble formation.

  32. @heinrich zwahlen Perhaps, but for anyone paying attention, QE and its near-zero rates could only go on for so long. Rising rates at some point were a given. Besides, cheap credit often leads to bubble formation, both for individuals and institutions. Financial prudence would dictate being wary of the current economic situation.

  33. @heinrich zwahlen - I agree. If I understand you correctly, you are referring to debt held by entities (households and foreign countries) that cannot create dollars. To this I would add corporate (business debt). Although our politicians worry about the debt of the US federal government (which thru the FED CAN create as many dollars as it needs), the problem is the kind of debt you mention. History bears this out. All 7 of our financial crises (1819, 1837, 1857, 1873, 1893, 1929, and 2008) have been preceded by an explosion in exactly this kind of debt, NOT in the debt of the US government.

  34. Not great news for homeowners with variable interest rate or other subprime loans. And not great news when home buying market cools when rates are higher, causing demand to weaken and home prices to drop. We know what happens next. We saw it a few years ago.

  35. @GH A cooling home buying market isn’t such a bad thing given the lack of inventory of homes in desirable places to live ( NOT meaning places like SF but meaning NOT places like Detroit). It can also moderate rising home prices making them more affordable for couples looking to set up their nest (household formation). Rising interest rates happen when animal spirits escape eight years of pathetic growth and politicians trying to escape responsibility by calling such economy “the new normal”. The long term outlook for the US economy is robust IMHO. For one thing the Globalists have been put on notice that the rules of the game have changed, much to the benefit of Americans.

  36. Doesn't the Fed control interest rates through its open market operations? The bond vigilantes have zero influence on rates unless the Fed permits it.

  37. The Federal Reserve only controls the interest rates with shortest duration. The market controls al other interest rates. Its actions at the low end of time can influence more longer term debt, but in no way dictates those levels.

  38. Thank you, Mr. Irwin, for your thoughtful analysis and insights into the stock market, the bond market, inflation, and the present and future of the financial markets in the United States. Stock buybacks by repatriated overseas corporate profits have contributed to the buoyancy of the US stock market, but will not continue. While Mr. Irwin mentions the "savvy investors" the most important omission from his analysis is the absence of what the "savvy computer algorithms" think about whether to buy, sell, or hold all those stocks in their portfolios. These algorithms accounted for 75% of trading volume in the United States in 2014. That figure is probably higher today.

  39. It is time for the interest rates to rise. As a fixed-income investor in good bonds of 4 to 5 year-horizon to maturity, I know that I shall be grinding the teeth because of the principal losses on paper, but I am tired of the 0.01 to 0,1% per year short-term interest rates.

  40. @Tuvw Xyz "0.01 to 0,1% per year short-term interest rates."... I am too but, despite increases in the Fed rate, those rates have barely budged. The banks are more than glad to pay you 0.1% while they lend it out as mortgages and for credit cards at 5 to 25%. There's simply too much money floating round for them to pay you much more.

  41. It is simply not true that rising interest rates are good for retirees. Firstly, retirees that have portfolios watch the value of them rise and fall with everyone else. Higher interest rates often depress the value of stocks and certainly depress the value of bond holdings. It is true that "new" money flowing into bonds with get higher yields. But, that can only represent a small fraction of a retirees portfolio. Actually the low interest rate environment of the past few 10 years has been great for retirees as they watched the value of their portfolios soar. There is a far stronger reason why higher interest rates are bad for all retirees. Higher rates imply higher inflation in the long run. The 1970s were a period of rising interest rates and was actually a disaster for retirees. Very few retirees are wealthy enough for the returns on their investments to cover both current expenses and the decline in spending power caused by higher inflation. While economics writers often say that higher interest rates are good for retirees, it just ain't so.

  42. What’s happening is a variation of what always happens over time on these markets. It’s taken a long time to figure that out, follow the trend of time.

  43. The recent tax cut was predicted to increase the deficit by at least two trillion dollars. To me that meant more borrowing by the Federal Government which would invariably mean higher short term interest rates would be needed to peddle the bonds. The stock market response as always was determined by computer trading with far too many computers running the same algorithms and the lemming response to join the herd falling off the cliff. Let us wait for a month to make a judgement what the market drop really means.

  44. I love economic development. It’s helped raise millions (billions?) of people out of poverty and dire health conditions. And yet, I can’t shake the feeling that there is a relationship between our global economic fortune and the destruction of the planet, not least of all an increase in carbon emissions despite all the scientific wisdom. It is precisely our ongoing drive for economic progress, for articles exactly like this one -and the underlying choice to remain blind of its consequences to the planet- that allow us to continue subsidizing the current energy paradigm. If we want future generations -as in present day toddlers- to inherent a prosperous planet and ecosystem, we should never talk about the short term rise in interest rates without at least calling out the horrors behind it. This “progress” is really just more companies feeling confident about spewing more poison into the atmosphere. We are riding a wave that we is destined to crash in the very near future.

  45. @Chris N. The planet is not undergoing “destruction” especially here in the United States. Nothing but hand wringing chicken-little talk. If you really believe such nonsense you should be clamoring to get your billions back from the EPA and every other regulatory body soaking up tax dollars and producing nothing beyond employment.

  46. Not a word about climate catastrophe? Are you going to keep the old stories going until your desk is under water? I'm saying the NYT has a responsibility in every business article to write a note saying "And our species economic model ignored climate destruction and mass extinctions of fellow travelers again, a footnote on just how crazy the idea of profit is today." Just sending a smoke signal out that we have to turn toward nature. Stop ignoring the boundaries we've crossed again and again. And we have to stop making the world an object. She's alive and if you haven't noticed accelerating her determination to wipe us out if we don't listen. Any fathers or mothers out here who also notice there have not been any profits in this economic system rooted in oil? Oil business is premised on huge government subsidies and hiding the true costs in making our seas and skies into sewers. The IPCC gives us a dozen years. I think more like 2 to change. Your measures in stocks and bonds don't matter anymore. This is a wink. Most of us who drive in cities can see that Henry Ford's dsydream has turned into our nightmare. Same with capitalism that acts like we are separate from nature. We are nature. and she is pissed. So before we're just putting fires out in summer and floods the rest of the year all the time, how about a sentence or two at the end of every "business" story on the economy noting that this storyline is exhausted but we appear not to care.

  47. So the Fed keeping the interest rate at zero under Obama was “bad news?”

  48. If you're writing in good faith, you're now the Tom Friedman of financial journalism -- just before the war in Iraq More likely, tho, you're writing in bad faith, as a way to curry favor with ... I don't know who ... which is the really bad news Why? Business journalism is known for its "on the one hand, on the other hand" approach to "analysis" This piece takes that dynamic to new levels -- especially without any analysis of actual interest rates, long- or short-term, but, rather, a whole series of quotes from insiders, whose limited technical "insights" don't add up to much -- most certainly not something "unambiguously good: This expansion may have some life in it yet" Given you're not saying much of substance, why the hoopla and Kavanaugh-like mis-leading headline? As yesterday's market indicated -- and you quietly allude to, without remarking on its significance -- the rise in short-term interest rates is going to INCREASE the cost of corporate borrowing Even more disturbing, short-term rate rise will hike the cost of servicing the existing Federal debt -- the government will have to use more of its existing appropriation to pay higher interest rates, which, given Federal spending limits, means less money to pay for government OBLIGATIONS like Social Security and Medicaid -- hence "legitimizing" the "need" for cuts Who's promoting the kinds of policies this "analysis" "supports"? Only Trump & the RPB "leadership" Unsavory company, Neil, as Tom discovered

  49. Easily could crash with the author of “gone crazy” throwing in wrenches to grind the gears of a free flow of international trade !

  50. You left out a word. Let me fix that for you. That’s Great For Most Bankers. Not for the rest of us though ...

  51. And our president who knows approximately ZERO about the most basic rules of economics, blames the Fed.

  52. @mark so, according to you a successful billionaire businessman knows ZERO about the basic rules of economics, but Barry...a city organizer...knew more? That's more hilarious than it is preposterous.

  53. Now I can get some return on my CDs.

  54. The grammar of economics is always written by industrialists. At the end, interest rate for all the good reason will benefit the rich.

  55. There are always "corrections" because traders, many of whom employ computer algorithm, take profits. This too shall blow over. Give it anorther day or two. The rise in Fed interest rates isn't helping. Trump, who appointed the Fed Chairman Jerome Powell, just spoke out about this. Of course the Fed is independent but they just cannot ignore what Trump has to say. If the Fed skips its projected December rate increase the market should regain substantiallly all of its losses. Then again, what goes up, must come down. The market cannot perpetually go up. The economy is good. Employment is up, unemployment is at record lows. Fundamentals are good. There might be some buying opportunities out there now.

  56. The rise in Fed interest rates is helping the President. It's an indication that the economy is strong enough to normalize interest rates. If the Fed skips a rate hike it will telegraph that a recession is coming and markets may well crater.

  57. Alas what is "good for the economy" is not good for you and me as home ownership becomes an ever distant possibility.

  58. Normally I would agree. But not now. Interest rates are rising because the Fed is unloading its balance sheet of all the bonds it purchased with printed money during the Great Recession and US Government Deficits plus refinancing are requiring a higher premium. Look up "crowding out" in your basic economics book Mr Irwin.

  59. @Joe Barron This is technically correct, but the effect is tiny. The market in US Treasury debt is many trillions of dollars deep; the Federal reserve is rolling off a few tens of billions of dollars a quarter. The effect is there, but it's like a removing water from a bathtub with an eyedropper. It will be many, many years before the effect on the Fed's overall balance sheet manifests in a meaningful way. Interest rates on the long end of the curve are moving up due to the bond market's expectations of increasing economic growth and inflation.

  60. The last paragraph. If the news is 'unambiguously good' then why say 'may' have some life in it?

  61. Good news today does not necessarily presage good times tomorrow.

  62. @Stan Sutton ah....Confucius say!

  63. Say what you will about the New York Times, this is still where articulate and well informed people exchange reasoned ideas and opinions rather than trade insults. An island of enlightened sanity in the sea of philistine shrieking that is most social media. Thank you all for illuminating the entire range of perspectives on this complex topic.

  64. @Jordan Yes, the Times really ought to pay its most insightful commenters.

  65. @Jordan: Oh, if only every comment published were correct and true. A fair bit of blather, nonsense, and lies acquires a patina of credibility by virtue of having appeared here.

  66. @Jordan Oh really? I guess that excludes all the downright rude and incendiary comments about the President, his policies and staff, right? That's what I find most humorous...the NYT's readership thinking that they're actually objective, well informed and 'reasoned'. According to your flock it's OK to offend and insult the President and his followers, and heaven forbid if someone actually disagrees with your liberal positions. That's when the real assaults start. Mercy...

  67. Trump says that the “Fed is going crazy”.The Fed is being prudent.Evidently no one shared with Trump that his “beautiful”tax cut added a huge amount to our national debt .That debt has to be paid with interest.As the economy stabilizes interest rates will rise.We have had abnormally low rates while the economy has righted itself post 2008 financial disaster.Also, Trump has not absorbed the fact that our debt is held by foreign countries including a huge amount by China whom Trump is trying to punish.Trump’s own finances have faced tough questions- he has had several bankruptcies.The Fed must pursue a sane monetary policy without gratuitous remarks from Trump.

  68. I sure would appreciate to read and or hear an analysis from others that doesn't come across as being so sure of themselves. The way I understand it there are far too many moving parts in our artificially created paradise to be so sure of the future. More to this point. I have read comments on many occasions regarding the past that don't coincide. Now how on earth could this be occurring?... I'd like to take this time to ask you all to love your agnostics and independents, for they are the only group of people you can count on to give it to you straight.

  69. This is Trumps start of the big recession the NYT's recent article said is coming . I hope it is big for his supporters to show his economics is a failure like the rest of the GOP presidents ahead of him. When you give trillions to the rich in welfare hand outs like George Bush the son did that economic strategy never works. Trump got the post office study back and they want to lay off over 44, 000 people the article said is not a good sign for a healthy economy. The post office abused their health care and created a 10 billion health bill. Why does UPS and FED X not have a big health care bill? Only trouble with them is there postage are too expensive so I pass on having them delivering to me.

  70. Agree. The Fed is basically a safety valve to help the economy when it is down and prevent it from running wild and then crash. It usually works but sometimes the electorate, and our three branches go bananas anyway like with the 2007 Great Recession. Trump is doing his best now to repeat the above with the corporate welfare tax cut adding trillions to the national debt in the short run, an insane total trade war, Wall Street running wild on nothing etc. etc.

  71. First comes wild stock market euphoria and real estate speculation fueled by colossal government overspending and irresponsible deregulation of corporations and the environment. On top of this comes several more years of government by whim, caprice and executive orders featuring wild inflation, overseas military adventures and widespread social protests throughout the country. Finally ending in a modern form of Fascism headed by Trump and Pence and their future acolytes. Given the unstable character and mentality of the man with delusions of grandeur we chose to honor with the Presidency, how could it be otherwise? It was a grand experiment while it lasted, but nothing great lasts forever.

  72. The folks who explain market moves would be the richest people on earth if only their analysis worked as well for predicting next week as it did for last week.

  73. @jrd yet we're to believe 'climate experts', who can't even predict the hurricane seasons storms much less the weekend weather. And you expect us to buy in to their 100 year prognostications? Same issue here...the rearview mirror is a lot more accurate than the windshield.

  74. interest rates are going up, in part, because of increased borrowings caused by the Trump tax cuts that are being paid for with IOUs.

  75. The fed had “gone crazy”, as if that idiot even knows what the fed does, let alone why it does what it does.

  76. Truest statement in all these comments

  77. @SPH Interesting. The most facile, least analytical comment receives among the highest number of recommendations. I am hardly a Trump fan, but there are comments here from contrary sides that reflect some knowledge of the relevant economic facts. These are the ones that ought to be recommended whether you agree or not. What is the danger from learning?

  78. @Spinoza Maybe the Fed has not gone crazy but it seems like interest rates are going up really fast after being flat for nearly 10 years.

  79. Nice piece on “why” of this correction, but the report by the IPCC claiming we got about a dozen years to correct this global warming trend, is the “huge elephant in the room”, and it came out just before this correction. Converting the world economy off carbon in a decade is truly huge. Where’s that investment going to come from? And where is the world leadership going to come from? Not here. Trump wants no part of it; denies its existence. In fact, he’s exacerbated it by his policies. Meanwhile the rest of the industrialized world has their heads down studying atmospheric science, figuring out strategies, technologies, while our atmospheric scientists and policy makers at EPA aren’t even allowed to mention “climate change”. So,take out 2 more years of diligence on this problem at least, and maybe 6 years if he gets re-elected. That’s half the margin gone due to the whim of this one man, who will be in court in his post presidency for the rest of his life.

  80. @Boweezo We don't have 10 years to start tackling climate change; we have 10 years to complete whatever we could still do to combat climate change effects.

  81. @Boweezo talk to India and China on their coal plants and get back to me will ya? You make it sound like the USA holds the key to what you describe as a world event. Oh, but you want the USA to PAY for all the 'proposed fixes', right? That's what the President is balking at...the joint strategy of China and others to spend ourselves into submission. Good luck with that.

  82. While I don't believe our unemployment rate is actually as low as the vaunted 3.9%, how could anyone think that the Fed would not raise rates to combat inflation? The Fed has always been more enamored of its anti-inflation mission than its full employment mission, so we will continue to see rates go up if we continue to see a heating economy.

  83. The "Fed Rate" is what banks and other companies allowed to borrow at the "Fed Window" pay for borrowing federal money. Of course there are lamentations when that money is no longer free. Poor babies! Of course, what those who cannot borrow at the "Fed Window" is quite another matter. For those with means and great credit scores it isn't too bad, for the rest it approaches relative usury. But hey, if you can't use the poor, what good are they?

  84. Or, the bond market is demanding higher yields across the yield curve to "punish" Trump's unfunded corporate and wealthy individual tax cuts!

  85. Trump is frightened by interest rate going up. T Bills yield have to rise in tandem to stay competitive otherwise nobody want this 'safe haven'. Next thing we know, Treasury will be running a deficit due to more $ needed to service higher yield debt. China will dump tranches of T Bills, perhaps $50-$100 billion at a time to further spike T Bond yield. The rising T Bond yield will be the Titanic that sink Trump and force him to stop his trade war with China.

  86. Who woulda thought that running an economy would be do challenging? Ask Larry ‘ the milk genius’ Kudlow know-it-none

  87. Yes, do worry about China dumping US bonds or not buying more

  88. I suppose id rather pay more interest then principle all else being equal as I can deduct interest. That math works out right?

  89. Lest we forget that savers and individuals on fixed incomes have been punished by zero real interest rates for years. This has pushed people to buy higher risk assets, especially stocks, junk bonds and leveraged loans, than they should in search of yield. This needs to unwind. Even though rates have come up, banks still are not paying higher interest on deposits at the same time they are raising rates on loans. That spread is important to bank profitability but still punishes savers. Over the last ten years, the central banks have used tools, such as quantitative easing, to nurse the world's economies along, try to restructure bad debt, and support what has been a mediocre economic growth. But at least the U.S. economy is showing strength, though it's unclear whether the fiscal boost from the Trump tax cuts is inflationary or whether the craziness over tariffs is going to drag growth down. Financial markets anticipate the future, but not always correctly. At this point it would be better to focus on risk management rather than pursue a strategy of aggressive seeking of the last final not of return.

  90. Savers always have options and generally make out just fine. How? First by investing in bonds (that is munis, not bond funds) which have paid very good interest over the past decade and are tax free (depending on the municipality you live in). Second, savers avoid paying interest, for example on credit cards. As for those on “fixed incomes,” that’s everyone who lives on a salary. If the reference is to Social Security recipients, well then they received an uninterrupted monthly payment since they started receiving SS — now that’s an “asset class” worth protecting.

  91. We will all pay for the completely unnecessary tax cuts All except 45 and his 1% cronies that is

  92. Nancy Thanks for your wise and non-partisan analysis!

  93. The cost to borrow money may be "on the rise", but still is historically low. Only some 35 years ago mortgage rates were around 15%; people still bought houses. Of course realtors want low rates and high home prices, but the general economy benefits from the current trend. For 8 years Obama's Fed transferred trillions of tax dollars and lost interest on savings from the middle classes and seniors to Wall Street, suppressing spending, labor participation, and wages for all but the wealthy, while simultaneously increasing income inequality.

  94. “Obama’s Fed,” also know as Janet Yellen, a highly distinguished economist, also created the conditions for the historically low unemployment rate we are now seeing (per official stats, at least) and which is the envy of the world.

  95. @RC Nice dig at Obama but the Fed had to flood the system with money to deal with the financial collapse and the Great Bush Recession. Not so now and income inequality continues to grow.

  96. RC Yours a weak argument against Obama economic policies. 1. Wage stagnation (middle class earners, $40K cohort) has plagued US economy for many decades. 2. Wealth gap you cite has little to do with quantitative easing moves during late Bernanke-Janet Yellen’s Fed. 3. % of middle class income required for quality health care was addressed by ACA, yet vengeful and tone deaf Republicans sought to undermine and still do. 4. No President deserves credit for stock market gains, but Nobel Laureate Robert Schiller’s extensive historical data shows slight preference for Dems. So please be careful with quick blame analysis. Can we agree: isn’t it more complex than you imply?

  97. After living through the 70's with high inflation rates and correspondingly high interest rates, I hope the fed continues to be assertive in combating any signs of inflation that could careen badly off the rails. The markets are far from perfect in their exuberance and in their fears. Having a steady hand at the Fed gives me more peace-of-mind than if the Fed simply sat back and took a hands-off approach to managing our inflation.

  98. In my view, the least bad environment for entrepreneurs to face the kaleidoscopic future that is a consequence of creative destruction is one where current nominal expenditure, and more importantly, expected future nominal expenditure, remains on a slow, steady growth path. At least roughly, such expectations both require and are consistent with a quantity of money that adjusts to the demand to hold it, and market interest rates that keep saving and investment equal over the near term. However, it provides no guarantee that current short term market interest rates will persist into the future, much less that an investment made based on that short term interest rate will find consumers ready to buy at the particular future dates when the project matures. Taking current current short term rates to be the proper gauge of future interest rates is foolish. It is about as foolish as projecting the past trend in the price of an asset into the future. (Housing prices have always gone up, so they will continue to go up. Housing prices have been rising very rapidly for the last few years, so I should buy a house now and make a lot of money too.) To the degree people make these sorts of foolish decisions, perhaps economists should provide some warning. But I don't think having a monetary regime that promises to keep interest rates at a level where such mistakes are avoided is feasible, or even desirable.

  99. I thought interest rates were going up because the Republican's cut taxes and increased spending causing a larger year over year federal deficit at the same time the Federal reserve is reducing it's debt purchases. This combination of events is causing the Treasury department to double it's borrowing to a Trillion dollars both this year and next to fund monetary commitments. Without increasing demand for our debt, how are we going to sell it and run the government? I suspect the way to increase the demand is to increase the interest rate. Seems like a simple supply and demand equation.

  100. No worries. With deepening deficits, surging income inequality, lots of bellicose rhetoric and looming trade wars, trump and his gang of Banana Republicans can keep the good times going indefinitely. And there's always another tax cut to fend off any signs of trouble.

  101. @Innocent Bystander thank you President Trump! You have saved us from the throws of socialism. That was the course Barry had us chartered for, but we would surely have shipwrecked earlier w/o your intervention.

  102. Interest rates are rising for all the wrong reasons: 1) Citizens and businesses are in debt up to their ears and willing to pay higher rates. 2) We are in the midst of a unreported massive "stagflation" - salaries are effectively falling and while unemployment is down, underpaid underemployment is running at way too high a rate. 3) The tax system's been broke, and there's no money coming in to the treasury. 4) The stock market iasn't overvalued, gas prices aren't too high - food prices aren't soaring - the dollar has significantly dropped in value, since Trump slaughtered the Obama recovery programs - we're far enough into his presidency, with the damage he's caused the system for him to take the blame. Why this rapid inflation - gas and fuel at its highest prices ever, people needing to work 2 full-time jobs to survive, the wealthiest hoarding their wealth - has not been reported is a mystery to me. But fill up your tank and go to the supermarket - you will see the reality.

  103. @EATOIN SHRDLU The treasury has been taking in record numbers. It's set to pass 4T for 2018. Trump is a lot of things but his economic policy is on point. Trade, unemployment, manufacturing and job creation numbers. rapid inflation is nowhere to be found. The feds are raising rates to keep it in check. Obama damaged the recovery because as soon as he left office we started seeing the consumer and business confidence soar. Pumping the bond markets for almost a decade.

  104. @fz1 The treasury, inflation adjusted is taking in less money and the year over year deficit is going up. To think we had a massive tax cut along with a huge increase in spending, reduced regulations that protects both our environment and banking system and we have gotten a small increase in wages, a reduction of health benefits, and a massive destruction of our federal government balance sheet that is raising interest rates on autos, appliances and housing for the average American along with tariffs that will pass through additional inflation which will eat up any wage gains that the stimulus may have produced. The Obama recovery was somewhat muted because we had divided government that reduced federal stimulus and spending. It also created one of the longest most sustainable recoveries in history and was on track to continue for years.

  105. @fz1 well said sir. I note I am the 2nd one to recommend your post, whereas all the absurd 'the sky is falling' and 'we'd rather eat Spam than steak' crowd on here recommends each other dour, doom & gloom (and unfounded criticisms) posts. It's a funny crowd these NYTs libs...they love to roll in bad news and run like a vampire from the sunlight of great news. Confounding bunch.

  106. There is some inflation and the Fed agrees raising the Social Security COLA to about 2.8% thereabouts for 2019 payees. Still, the Fed should not raise rates anymore this year! Let the markets digest these events and settle down. CNBC pundits think there will be a market rise after the coming election , and who wins is immaterial they say. Hope so...

  107. Fine analysis, calming.

  108. The Fed has the tough task of transitioning the economy from the post-financial crisis “zero interest rate” environment to a normalized, recovered, market-driven investment environment. It’s made more difficult by government borrowing and leveraged instruments driven by the ZIRP rewards for excess risk. So far don’t we have to say they’ve done a brilliant job? I think so. And may they continue to do so well!

  109. Lets get a grip people. In 1996, GDP growth was 3.8%, unemployment was 5.3%, inflation was 2.95%, and I got a conventional 30 year mortgage for 7.25%.

  110. @Douglas Lowenthal The problem with your argument is that home prices weren't nearly as high in 1996 as they are in 2018. As I sit here today, the median home price in Seattle is 10x the median household income. Think about that for a minute...ten times the annual household income with two wage earners. Home prices are as expensive as they are today because of protracted, artificially low interest rates; home prices have been bid up to the limits of affordability by these interest rates, and further increases in rates must drive down prices. The era of free money is coming to an end. If I were a homeowner, I'd be listing right now. If not, short the housing market through renting. Buying now is almost a guarantee of being underwater in the near future.

  111. Maybe if people can't buy those houses it'll force the price to come down out of the stratosphere so folks can afford them?

  112. @Mark My house is paid off as of last year, we are staying put till we retire hopefully we'll have jobs for another 5 - 6 years. I'm glad we never bought more house than we could afford. I notice that the $500,000 houses are being snapped up a lot faster than the ones which are listed at over a million and they are the ones who use the exact same school district. So you're better off with an entry level house in a good neighborhood.

  113. Rising interest rates would increase government deficit by elevating the interest payment on huge debt. Corporations have also borrowed a lot, will find the cash flow crimped by the rising interest rates and so would the households. Rising rates signal strength of the economy but also present downsides. With the trade wars, restrictions on foreign investment and the rising interest rates and tightening fiscal policy could also adversely affect the corproate profits and the economic growth. We have to wait for the reality to prove one scenario or the other right. It injects an element of uncertainty.

  114. @s.khan I agree and I'm nervous about the Fed raising interest rates so quickly. There are a lot of businesses who are looking to borrow money to expand, why are we making it more expensive for them? They will just put off their plans, not give their employees a raise or offer them health benefits, etc.

  115. I'm not an economist, just a farmer, but when I hear about all the concern about the high level of citizen debt and what this gradual rise in rates means to those holding it and their continued spending makes me wonder what kind of house of cards our economy is to begin with. No wonder the Fed proceeds with caution, but I'd feel a lot safer if Americans would-could save more of their money. Maybe we should look at some of the most wasteful aspects of our economy that makes it so hard for us to hold onto earnings, such as a health care system that is twice as expensive as the world average. We could put an average of $3,000 dollars in the pockets of every American right there.

  116. @alan haigh Interest rate hike is way way overdue. For many years, maybe at least five years, CD's were at near zero rate, a measly 0.25% on average. This is robbery of savers while helping to bring back solvency to banks who were burnt from 2008 financial crisis. This is Fed engineered scheme to save the institutions at the expense of savers while the purchasing power of the Dollar continue to diminish. This is why ordinary Americans don't really feel richer even though the economy seems to be 'booming'. Fed unleashing the interest rate now is the right thing to do to narrow the loss of purchasing power of savers who park their money in CD's. Not everybody want to gamble in the money market account.

  117. @alan haigh I agree with freokin but must add: Single Payer is the only tool that can solve health care, but we must keep politicians far, far away as they work for the health industry.

  118. Much of the adverse impact of higher inflation and interest rates could have been avoided if Trump and the Republicans had not added about $300/billion per year in stimulus over the next decade via tax cuts and spending. The Obama Boom was doing just fine; politicians putting country before party would have raised taxes moderately on the rich and cut spending a bit to bring the down the deficit, slowing the Fed's interest rate trajectory and keeping inflation down below 2%.

  119. @David Doney the "Obama Boom"...LOL. That's a good one.

  120. If interest rates increase then lots of homeowners who only own their own homes and/or one investment property could go bankrupt so the rich will get richer and that's not good for the economy because everything is interrelated and has a domino effect. None of this is going to affect people who are mortgage free - only the people with mortgages. So human nature being what it is all the opportunists will be waiting for the crash and to buy up more investment properties.

  121. @CK interest rate increases will only affect variable rate mortgages.

  122. As if on "cue", the bond market "rallied" today with the 10 year treasury bond's interest rate falling to 3.14% from 3.23% as the stock market continues its sell-off. The 10 year bond has had several forays above 3% over the past year, always to back down below that figure, and this may be another example of a false move to the upside in interest rates. I strongly suggest that those of you looking for a modicum of safe yield, look to online FDIC insured CDs (most online brokerages such as Fidelity offer them) where rates are much better than 10 year treasuries. For example, a 3-year CD yields 3.2%, a decent return in this still extremely low interest rate environment.

  123. @marty Agree! As / if interest rates start to look better, maybe even decent -- simple old-fashioned CDs with reasonable hold times are a much safer, surer -- and better 'sleep at night' -- bet than this roller coaster / Las Vegas environment we have been subject to for the last 10+ years. A guaranteed return that is is insured. May those opportunities start to present themselves. (And, as someone with a friend who lived for many years in the Andover/North Andover area, hope you and yours are well, and that all those affected by those awful gas explosions are starting to get answers and relief. Best to all.)

  124. If you're worried about the value of your house or cost of your mortgage, I'd question why you have it to begin with. Americans need to quit treating housing as an investment - or they need to learn that investments don't always pan out the way you expected. Don't buy more than you can afford to lose. If that means don't buy at all, then hey, crazy idea, just don't buy!

  125. @Mr. Adams common sense...where have you been for years? Regardless, welcome back sir!

  126. I would not describe "may have some life in it yet" as "unambiguously good".

  127. @Richard Schumacher Reminds one of the "Mostly dead" line in the Princess Bride.

  128. Meanwhile back in the real world lots of kiwi businesses are getting start ups not by taking out loans but by doing crowd funds on Pledge Me web page. I'm going to put a small amount of money, by buying shares, into " The New Zealand Whiskey Company" that wants to grow its business and export overseas when their crowdfunding kicks off on 26th October. Businesses need to get the little guy, Joanne bloggs or Joe the plumber, investing in local business growth by not getting bank loans, but by getting the community involved by crowd funding.

  129. I love articles like this - positive outlook based on solid, fact based analysis and not some wishful two-handed opinions. I was hoping that the Fed may back off on the December rate increase after consumer price rising 0.1%, less than the expected 0.2%, but it looks like the Fed is going to stick to their scheduled increases. While the short-term (I hope) market decreases will be disconcerting, we should find some solace in the fact that the Fed is confident that the market/economy can take it as this article points out. We can't live on cheap money forever. And let's all hold on, as this too shall pass.

  130. @Integra Casey There is a good deal of opinion and speculation here.

  131. @Mark Shyres LOL...and what pray tell do you consider the rest of these comments? Mercy...

  132. Most excellent news indeed. Very much looking forward to my bond holdings to be paying out 6% as I near retirement (in actuality just quitting working). Now that I have the mortgages for my home and lake house locked in at sub-3% money I’m all set. Soon I’ll be freeing myself of most income taxes so as to not fund a bloated, dysfunctional and overbearing government. I know John Galt.

  133. @Terry excellent. BTW, where is John Galt?

  134. Is the New York Times finally admitting that the economy is doing better than ever? Yes, thanks for honest reporting and good luck to the Democrats in the upcoming midterms.

  135. @ERA Most amusing. The economy was booming long before Trump even took Idaho's four votes in the primaries, and long before any of his policies had begun to take shape as would-be President. Suggest you read the ENTIRE economics sections of the paper, rather than cherry-picking only what you like to see.

  136. @ERA AMEN to that!

  137. @CPMariner the economy was "booming" under Barry? LOL...please. You're making my sides hurt with laughter. We were in the tank and headed to the bottom of the pool. GDP near zero, rising unemployment...all with HIS FED printing money like Office Depot on steroids. Even with all that artificial jet fuel we stuttered, stammered and choked into a roadside ditch. Trump and his economic policies are solely responsible for the success we're seeing today. Solely.

  138. Bottom line is lets give the banks and lenders more money. Pity the fool with variable loans. More income and social divide is just what this country needs.

  139. No worries, smooth sailing, the markets know best. This time is different!

  140. @Dora MinorMarkets know best is cliche’. Who says? Who says raising rates is good? Same experts who saw the failure of 2017-8! Same old BS of formula, history etc. history is irrelevant when computers trade. When we have flas trading. When we have a real global stock market. These never happened before. Jibs, jobs jibs. It is the first statutory obligation of the Federal Reserve System.

  141. It baffles me that huge government debt tax cuts higher costs on imported goods higher interest rates low unemployment doesn't add up to an ever increasing rate of inflation. The answer up to now has been the crushing of unions, the quiessence of workers and immigration. But with rising prices and near full employment the quiet period is over. I think Wall Street is giving to the Democrats because it sees the writing on the wall and wants to forestall the social democratic movement.

  142. Excellent. The faster investment savings are moved from volatile equities into solid long-term bonds, the better; excepting, of course, junk bonds. Aside from the unexpected, the days of stagflation are long gone, and along with them double digit bond interest rates. It was great while it lasted! But it's a dead duck. All theory and speculation aside, anyone who puts his money on Trump's predictions deserves what he gets. CPM - Orlando, FL

  143. @CPMariner what am I missing? Higher interest rates means the Fed is confident that the economic growth will continue. That’s what the author is saying.

  144. @Scott you haven't missed anything. You are reading the hypocritical rant similar to 95%+ of the posters on here. They can't focus on the actual facts and great results and trends. That doesn't mix well with their hatred of all things Trump. We joke that some could hand them the keys to a brand new questions asked...and they'd complain that it requires 93 octane gas. There is no joy in these people. The gain joy through being miserable. I think they're quite good at it.

  145. Could Mr. Erwin distill his points into a few cartoons for the child masquerading as an adult in the Oval Office?

  146. There is no inflation only if you cook the numbers. Any consumer can tell you that everything at the consumer level is and has been going up steadily over this time of "no inflation". From tuition to insurance to car payments to groceries to utilities to housing to taxes, they only thing not going up for most Americans are their paychecks. Not sure how that squares with no inflation with a straight face. Our economy is burdened with unprecedented debt levels from government to corporate to personal. You cannot borrow your way to prosperity or a bright future and you cannot tax your way, either. The markets are overvalued by cheap central bank money and are way overdue a correction and a sharp one at that. Just wait until the true impact of the GOP Tax Scam become fully apparent.

  147. I think that the Fed’s (actually the whole Western economy’s) efforts to control the level of interest rates is to significant extend like attempting to control the level of water in a bath tab to with China is given the plug. It could be that the reason for the raise in the L-T bond rates includes an expectation that the free ride China exports have been enjoying may be nearing the end. If EU countries follow suit and introduce their own duties on the China import products, more of the economic activity will shift to the West, and correspondingly, more monetary control to the central bankers. If so, it could be that Trump, in spite of being an econ-knowledge ignorant, would have accidentally started a positive process with the West gradually re-gaining control over the interest rates and the economies. The problem is that the same way Trump may have accidentally started the process he may now ‘accidentally’ prevent it from proceeding out of lack of understanding that the US cannot make the process work without cooperating with the EU.

  148. @Grain of Sand if you think that 'econ-knowledge ignorant' trumps (pun intended) 'econ-elite egotists', then you are sadly mistaken. This President 'gets it' along with Wilbur Ross. These folks have actually RUN companies with balance sheets...not been in liberal socialist theory classes while assembling a cast of clowns with ZERO business acumen to set our economic policy. If you think all this robust activity is the result of luck, I have some 'oceanfront' swamp land down here I like to sell you.

  149. Trump is just a real estate guy who feasts on cheap money and goes bankrupt when interest rates rise, leaving others to write off his debts. He likes bubbles, never expecting them to burst, unwilling to accept anyone saying that we should let some air out before it bursts. Just another example of his being unable to think about anyone but himself.

  150. This is just another example of how all the phony analysts and experts are capable of is to just look at the present, and then 'predict' that the current trends will continue into the future indefinitely. And then 'nobody could have known' when it actually turns out that the future looks different from the present. How likely is it that a recovery that is 8 years old will continue for another 8 years or anything close to that? Not very likely, it seems to me. And yet that is exactly what 'experts' seem to be betting on. The sun is shining today, so only a fool would think there could be rain tomorrow, right? An actual expert or analyst of any use would have predicted the present five or eight years ago. A few, very few, probably did, and they and their clients are doing extremely well now. But the great bulk of 'experts' and the sheep that follow them are just imbeciles who will be as surprised and stunned by the next crisis as they were by every previous crisis.

  151. @GS The first eight years of this recovery were the SLOWEST recovery ever recorded. You might as well call a period with annual GDP growth of1.3% just a warming-up.

  152. @L'osservatore it was only when we got a real businessman in office that the recovery became real. Like a rocket real. Amazing what the President and staff have engineered. I almost forgot what our country looked like in the previous 8 years. I thought the damage done by Barry was irreversible. Now I have hope.

  153. @GS you just aptly described the 'climate change' agenda perfectly...look at the present, then 'predict' that current trends will continue into the future indefinitely, and when they don't then 'nobody could have known' when it actually turns out that the future looks different than the present. See, even 'experts' like you can't have your cake and eat it too.

  154. All I know is that when the next major economic downturn comes, the bottom 90% will take it on the chin, the next 9% will hold their own, and the top 1% will be first in line to get bailed out by the rest of us. Same as it ever was...

  155. A president with 11 major bankruptcies, who cant even get a loan from a US bank (ahemm, Russia), thinks he knows better. You put a trillion dollars on a credit card for no other reason than to try to starve Medicare, Mr. Trump. Just like the debt collectors from the failed Taj Mahal, a time of reckoning will come.

  156. A two month fluctuation from a .18 super flat to a .33 super flat provides no prescience on the future behavior of these rates and ratios. If it did, in combination with your favorite adjunct statistics or not, the market makers would have it to 1.33 right now. The sophistication of macroeconomic modeling will out compete your oracular divinations, whatever the methodology. Professional Augurs and Oracles should show their work. Where the images of the entrails, videos of the birds in flight, confirmation of the bones rolled by respected peers in your finance subgenre? Otherwise, heck, its practically guessing.

  157. Rates remain at historically low levels, and if the spread between long and short term rates continues to widen, that can only be to the good. An inverted yield curve inevitably indicates problems ahead. The problem with higher rates is that the cost of servicing the public debt goes up. We are approaching a point at which the fiscal irresponsibility of the politicians (tolerated by the public at large) will affect programs (like Social Security) that many people depend on. Admittedly some of us have been warning about this since the early 2000s, but eventually the chickens must come home to roost, and it looks like the 2020s will be that time. We need to cut Defense (which also means cutting our global commitments) by a substantial amount (maybe 25 percent), and eliminate all unnecessary spending on other programs in order to save what's really vital and important. There's more unnecessary federal spending than most people would like to admit. I would be very careful on the tax front, however, since 1) it's our money, and 2) more revenue inevitably translates into more spending. Increasing the corporate rate from 21 to 25 percent, and hiking rates a bit on the top 5 or 10 percent of earners would be as far as I would go. The key is to cut Defense and reform entitlements before they become completely unmanageable.

  158. "This expansion may have some life in it yet." But for who? Wall Street traders, the very rich? This "expansion" hasn't helped those who have been bankrupted by health care costs, or crippled by student debt. It hasn't really helped the average worker - certainly not to the degree that it has enriched the Oligarchs. Oh well, you did mention that higher interest rates might slow the rapid rise in housing prices. You did say that increased borrowing costs may make it harder to purchase a home. So you give us moderating home prices and then take away the ability to buy. Thanks a bunch. This "expansion" you speak of has benefited too few. There will be a point when some rich person will say the equivalent of "Let them eat cake". This selective "expansion" - this economy just for the upper class - is unsustainable. Maybe we need a reality TV star who can express some sense of outrage, social equity, fairness.....some humanity. Neil, your article is encouraging for fat cats but infuriating to those who work 2 or 3 jobs and can barely afford food and rent - let alone decent healthcare. Get out of your privilege bubble.

  159. @Bob Bruce Anderson unemployment rates are the lowest in 100 years...3.7% What do you want exactly? Socialism?

  160. Just wait till the China dumps its enormous Treasury bond holdings, spiking yields suddenly and dramatically. All that so called continued economic growth will violently reverse. And of course our dear President will retaliate by imposing more tariffs on China, leading to more bond dumping and economic disaster.

  161. @Iplod They couldn't do that and manage their own desired currency ranges if they did that. While being done in a typical blustery fashion that is not helpful, de-coupling from China is better to do now than later.

  162. The very idea of the Federal Reserve and its banking cartel is one of socialist central planning of what should be a free money market. It was almost entirely responsible for the crash of 1929, it prolonged recovery therefrom into the 16-year Great Depression, it caused the Great Stagflation of the 1970s and the dot-com boom and bust of the 90s, the Mortgage-Market Plunge of 2007-08, and its tepid, long recovery known as the Great Recession the lasted throughout the 8 years of the Obama administration. End the Fed--now!

  163. It is healthy for interest rates to return to a reasonable level. This last period has basically been a war on savers (I don't think intentionally) that has made it quite difficult for people living off their savings (my grandmother for example). Artificially low interest rates also encourages significant risk taking in other areas of the market to try and get a return which can lead to worse crashes. While I certainly want rock bottom rates to help with a housing purchase, moderately higher rates are overall a good thing for the economy.

  164. Neil, Thanks for your report on the Fed's interest rate plan. I accept that the increase and the project interest rate goals are very gradual increases and they can correct if we see that the US quality of life for all quintiles of the income distribution takes a hit. I believe the cost of health care continues to rise. It might be because our society is aging and the cost of some of the exotic new therapies are very expensive. So, I really don't observe that prices are falling but things that seem to be increasing like medical and pharma are being picked up by Medicare, and Medicaid. Assisted care in group facilities or in homes seems to be increasing. Older people who are still in their homes can probably expect a downward pressure on the selling price of their homes. This also will add to the Federal Deficit as the government borrows to fund government obligations and ultimately this will probably increase taxes.