In normal markets, investors would find the suggestion of raising interest rates in a weak economy about as daft as holding a TV antenna in a thunderstorm. Yet, after five years of “stimulative” monetary policy, this week’s survey results from CFA Institute Financial NewsBrief suggest that investors are ready for a radical departure from economics orthodoxy.
What change in rates would help the U.S. economy the most?
Although the results do not show a consensus about what to do, the fact that 45% of respondents think that raising interest rates is a strategy worth considering is telling. It reflects the reduced effectiveness of the traditional tools central banks have developed and used repeatedly over the past 25 years. Low interest rate strategies have done little to resuscitate a global economy suffocating under trillions of dollars of sovereign debt. But the potential cost of higher interest rate policies and the impact on the fiscal budgets of government issuers is likely to keep rates low for some time to come. Good for government issuers, but bad for savers and investors.
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