At Jackson Hole, Fed Chairman Janet Yellen hinted that Fed may be considering an interest hike in September. To put it simply, the logic of interest hike is that the US’s employment and economic activity have improved. Since people can handle higher interest rates (given higher income), Fed wants to get ahead of inflation by slowly returning rates from zero to a more “normal” level around 2-3% over the next few years.
We have discussed the negative effects of near-zero interzest rates in our previous articles like State of Global Stock Markets, and felt compelled to discuss few implications of interest rate hikes. Higher interest rates can promote a healthier financial market by returning risk curve back to normal and reining bubbly markets. However, our analysis shows that US consumers may not be as healthy as the Fed portrays them to be, and the Fed does not actually have ......