After the end of the Great Recession, short-term rates were held to zero percent by the Federal Reserve Bank in attempts to boost economic growth through borrowing and spending. Since December 2015, the Fed has raised short-term rates nine times hoping to keep the economy from overheating, and to quell inflation. However, according to economist Gary Shilling, post-World War II history shows that in 12 of 13 instances of rate hiking campaigns, a business downturn followed. And now some believe the interest rate hikes have been more about providing room for future rate cuts in the event of a recession, rather than worries over inflation or an overheating economy. Please proceed to The Details for my thoughts as well as for quotes from other economists on whether the Federal Reserve Bank is prompting a recession.
“Give me control of a nation’s money and I care not who makes it’s laws”
– Mayer Amschel Bauer Rothschild
As discussed in my January 15 newsletter entitled, “Are Interest Rates Going Up?”, the Federal Reserve Bank (Fed) controls short-term interest rates through the Federal Funds Rate (FFR). Panic-stricken after the Great Recession, the Fed eventually adopted ZIRP or Zero Interest Rate Policy in which the FFR was effectively lowered to zero percent. Although the recession officially ended in June 2009, ZIRP was kept in place until December 2015. Six and one-half years after the end of the recession, the Fed embarked on a gradual series of rate hikes. Recent stock market turmoil and dismal global economic results have now given the Fed pause.
Bob Cremerius, CPA/PFS
© 2019. This material was prepared by Bob Cremerius, CPA/PFS, of Cremerius Wealth Management, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.
Securities offered through First Heartland Capital, Inc., Member FINRA & SIPC. | Advisory Services offered through First Heartland Consultants, Inc. Cremerius Wealth Management is not affiliated with First Heartland Capital, Inc.
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