It'll be interesting to see how the following dynamics play out over the next few years.
I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can't remember the last time this kind of cycle did not end poorly i.e. a recession of some kind.
The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can't control) is to fight inflation via raising interest rates.
So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+/-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated/stable for the foreseeable future (although I haven't put any money on this).
The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.
I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can't remember the last time this kind of cycle did not end poorly i.e. a recession of some kind.
The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can't control) is to fight inflation via raising interest rates.
So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+/-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated/stable for the foreseeable future (although I haven't put any money on this).
The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.