Some on Wall Street are beginning to entertain the fringe economic theory as the US economy continues to grow and add new jobs month after month. They consider the possibility that the rise in interest rates over the past two years may actually be boosting the economy rather than hindering it. This idea flies in the face of conventional academic and financial thinking, but some experts find it hard to ignore the evidence that supports it.
By key economic measures such as GDP, unemployment and corporate profits, the current expansion appears to be as strong, if not stronger, than when the Federal Reserve first started raising rates. This suggests that higher interest rates may be playing a role in driving economic growth rather than slowing it as traditionally believed.
Federal Reserve Chairman Jerome Powell recently indicated that policymakers may wait longer than expected to cut interest rates, citing higher-than-expected inflation. If these price pressures continue, Powell said the Fed is prepared to keep interest rates steady for as long as necessary to support the economy.
This new perspective on interest rates and their impact on the economy challenges long-held beliefs in financial and academic circles. However, with more and more evidence supporting this theory, some are beginning to consider the possibility that higher interest rates could be the driving force behind the current economic expansion.