US Interest Rate Increases Curb Markets

Published / Last Updated on 26/09/2018

USA Interest RatesThe US central bank, the Federal Reserve has today increased interest rates for the third time this year.  Rates now stand at a range of 2.0% to 2.25% pa.

There is confidence in the US economy, unemployment is low and inflation on the rise.  Many were expecting this rate increase as the US gradually looks to take the economy back up normal economic activity and stable interest rates.  There is even support for a further rate increase before the end of the year.

Why did markets fall across the globe?

Interest rate increases are designed to marginally slow down the economy.  Ultimately, this means that if the boom in the US over the last few years is slowed down, then equally its biggest trading partners will slow down.  That said, the increase will also strengthen the $ meaning that US exports become more expensive, which goes against Donald Trump’s plan to reverse the trade deficit i.e. more US exports and less US imports.  What it also means though is paying off debt and servicing debt will be harder as rates are higher.  Will there be more toxic debt?

Stock market crash?  Watch this space …. We are still seeing headlines, yet again, for a stock market crash, worse than 2008, expected some time in the next two years.  US debt has doubled to $21trillion in 10 years and global debt is up to nearly $250 trillion.  This is totally unsustainable and is far worse than in 2008. 

  • Debt caused the great recession in 1929 (which lasted for 10 years).
  • It caused Black Monday in 1987, with 'a run' on the government debt/bond market that caused panic in stock markets. 
  • It also caused the credit crunch crisis in 2008 (toxic mortgage debt and banks going under), which again took 10 years to recover from.

It has been predicted by two leading US economists that another crash is coming and likely within 2 years.  Debt is at unsustainable levels, wages are not increasing and economies will start to slow down.  Trade war will also not help the situation.