We clearly need the interest hikes. Inflation is a dangerous cancer, and it's "benefits" are always more or less negligible. I don't say that because I'm some raging anti-inflation person on economics - I understand that interest hikes are far less deadly than inflation.
It is true that very high inflation can be quite bad for the economy, such as the hyperinflation in the Weimar Republic and the stagflation in the US in the 70s and early 80s. However, inflation right now is nowhere near those levels. In fact, it is under the Fed's 2% target at just 1.6%. As for interest rate hikes, these too can have very bad effects on the economy. The early 80s and early 90s recessions were both caused by interest rate hikes. So why risk a recession when inflation is below average levels?
And mild inflation does have benefits. It favors borrowers over lenders because when prices are high, money is worth less. Therefore, although the money borrowers pay back to the lenders is the same numerically, it is worth less than it would be if there was less inflation. Borrowers are often poorer than lenders. Thus mild inflation can help improve the economic circumstances of poor borrowers. Deflation, on the other hand, which can result from raising interest rates, benefits lenders.
In the aftermath of the Great Recession, this reduction in the value of debt borrowers have to pay back is especially beneficial because of the high levels of household debt that caused the Great Recession. While it may be advantageous for individuals to pay off that debt, it is bad for the economy as a whole if everybody does it at the same time because to pay for the debt, the borrowers spend less money, which decreases demand in the economy. If the value of household debt is less expensive due to inflation than it was previously, then borrowers are more likely to start spending money again because they don't have to use as much of it paying down their debts. That's not to say that inflation doesn't also hurt the poor by making goods less affordable, but in the aftermath of the Great Recession higher inflation really can have positive effects.
The early 90's in debatable but the early 80 Reagan one was due to the sudden interest rates. And it was necessary. Sometimes, you need to have a small recession to save the economy. In the 80's there was stagflation, high inflation coupled with low growth. That is a vicious cycle & in the end you have collapsing growth & super high inflation, destabilizing the economy.
There are multiple problems with a low interest rate. Seniors don't get a good return & return on investment other than stock is pretty low. There is no overall correction of the market & it is managed by low interests & excessive liquidity without correcting the basic fundamental problems. And beyond a certain time, it becomes pretty meaningless. Interest rate is 1 part - And a small part of the overall Growth puzzle.
There is nothing to say that low interest rates will prevent a recession. Recession & low interest rates have been common. It is however a tool to provide excess liquidity to manage such a crisis. When you end up with 0% & the economy goes south, there is very little you can do next.
My guess in 2022 or 2023 @ the topic. I expect all of Trump's stupid policies to pile up & then in 5 years the deficit will rise (due to high interest rates) forcing huge spending cuts. There is already a huge concentration of wealth & this sudden huge cuts in a slow stagnant economy will cause a recession.
