The answer to that question is a Very Emphatic Definite YES!!
This is a discussion about The Fed BUT WITH A DIFFERENT SLANT. Everybody on the news circuit is talking about the interest rate hikes The Fed is implementing to curb inflation but no one is talking about JUST BTW–JUST WHAT IS or what should be THE OPTIMUM INTEREST RATE LEVEL for This–The U.S. Economy?
My contention is that The Fed should strive for the Interest rate level such that the bond market is fully revived so that in addition to The Government getting adequately funded (thus avoiding Congress having to call a Special Session every few months to raise The Debt Ceiling), banks and other institutional investors can again sufficiently capitalize retirement, pension funds and also annuity and insurance coverage related accounts while at the same time keeping in mind to do a “balancing act’ to keep Interest rate levels low enough to also allow for business investment and growth and consumer borrowing to, in toto, produce an across-the-board, most efficient, smoothly running economy as possible.
That is, while The Fed is increasing Interest Rates, it also should strive for an Interest rate level such that Fixed Income Assets and the Fixed Income Asset Market(s) can again become Fully Funded. This is vital and necessary for any Economy to be truly stable in the Long Term. Banks and other Institutional Investors need to again be able to sufficiently capitalize retirement and pension funds and also annuity and insurance coverage related accounts as well as The Secondary Mortgage Market. All these can only be adequately funded if Interest Rates are high enough so that the Bond, U.S. Treasury Market is fully revived by Interest Rate Levels high enough to attract sufficient investment so that in addition to The Government getting adequately funded, retirement, pension funds, annuity and insurance coverage related accounts can ALSO be sufficiently capitalized since in large part such funds are made possible by the purchase of Government Bonds (Federal, State and Local/Municipal) collecting Interest Yield on such to help with periodic and scheduled payouts.
Hence–In addition to the Interest Rate Hikes The Fed is implementing to Curb Inflation—this by decreasing, diminishing (“destroying”) Demand by increasing the Cost to Borrow money to purchase, these same Interest Rate Hikes are necessary to bring Our (or any) Economy (for that matter) back into balance—not only by bringing Demand down to better match Supply BUT ALSO to fund the purchase of Government Bonds (Federal, State and Local) and also (High Quality “Private Sector”) Corporate Bonds—this being done by making the Rates of Return (the Yields of these bonds) more attractive to potential buyers by virtue of the fact that every time The Fed hikes rates by 75, 50 or 25 basis points, the Rates of Return, the Yield Rates of these bonds also correspondingly go up thus making them more attractive to purchase in relation to other investments, stock and equity purchases and also investment in businesses, real estate, etc. by increasing the costs to purchase (to borrow) when making these business-related investments or when consumers make purchases thereby decreasing (“destroying”) Demand in these Sectors of Our Economy.
Also, and very importantly, these Interest Rate Hikes by The Fed allow Governments whether they be The Federal, State or Local Governments to adequately and better fund their many operational costs and obligations (Social Security, etc.) and better avoid having to raise the Debt Ceiling to meet up-and-coming expenses and obligations as they become due.
AND by these Interest Rate Hikes by making U.S. Treasury Bonds and other Fixed Asset Funds more attractive, this WILL ALSO ATTRACT (more) foreign investment because of the higher Interest Rates here and relative Stability of The Dollar compared to other parts of The World and as a further result of this foreign investment, this will strengthen The Dollar even more in relation to other currencies.
In addition, domestically, these Interest Rate Hikes also allow for better more adequate funding of IRA and 401(k) retirement funds since Banks now and other Institutional Investors, Insurance Companies and the like can now begin to invest in by the purchase of very financially secure and stable Government Bond Treasury purchases whereas before when, for example, the Ten Year Treasury was only at 1.46%, this was not possible (very unattractive to do.)
These Interest rate hikes will also translate into and encourage CD bank deposits, annuities and with higher Interest Rate Returns on Government Bond and Corporate Bond investment purchases AND btw this will also promote and allow for a more balanced investment portfolio for Banks, financial conglomerates and other institutional investors when considering stock market, business, real estate, commodity and other equity investments.
The point is–for an Economy to have long term structural integrity covering all aspects of growth with foreseeability and responsibility to ALL ASPECTS of the working parts of a stable economy, interest rate levels in the long term must be at such a level to accommodate (1) the Business and Investment Community, (2) the Needs and Obligations of The Government (at all levels–Federal, State and Local) and (3) the greater working class (also including those who through no fault of their own are less fortunate, disabled, elderly or have retired only subsisting on their Social Security Monthly Stipend.)
Regarding Aspect Point (1) Without adequate capitalization for the Business and Investment, we would fall behind the rest of The World in new product development and (3) critical manufacturing would disproportionately shift out-of-country and overseas. Poor profit margins would occur, unemployment and lack of pay raises and the ability to keep up with increases in the cost-of-living.
(2) To fuel necessary Government Expense Needs and Obligations this is why Interest Rate Hikes for best long-term results and Structural Planning of Our Economy must be at such a level so that there’ll always be enough of a financial incentive, in the aggregate, for there to be sufficient Bond purchases to fuel Necessary Government Expense Needs and Obligations while at the same time with Interest Rates NOT being too high so as Not to unduly burden (National) Debt Servicing. Please note–To be realistic, no matter how much the Annual Budget is scaled back, taxation alone will never be enough to fund our annual Budget Needs–thus we will always need an adequate bond pool.
(3) Also, for Banks and other financial and institutional investors to sufficiently capitalize IRA and 401(k) retirement and pension funds and for insurance-related and annuity accounts, interest rates must be at such a level to generate enough self-funding to maintain account levels per anticipated payouts. Even though these are important considerations, interest rates must NOT be so high that looking on the “other side of the coin” (1) business growth and investment along with consumer spending is NOT hindered.
This is the trick—There must be a balance, an interest rate level, that causes, apportions the optimum relative amounts of pools of money (supply) between different Parts of The Economy while at the same time taking into account that these divergent Sector Parts react differently at different rates of interest.
And now as The Fed adjusts interest rates throughout the economy—NOW would ALSO be the right time to address these concerns and find the OPTIMUM INTEREST RATE LEVEL that combined–takes all these concerns into account and brings them ALL into proper focus.
