Register now or log in to join your professional community.
Rising rates usually go along with inflation. And some inflation is good, but too much, too quickly can be bad. With regards to bonds, if rates rise too quickly, bonds that are already issued may be subject to panic-type selling. It would be great for new savers or those with current loans, bad for those who own bonds or those who have to borrow new money. In the short-term, things like home sales could suffer with the higher rates. On the upside, if we have wage inflation with the higher rates, buyers may buy anyway. Too much inflation can be bad too. Most inflation comes from wage inflation and that has been missing for years. If we do get too much inflation, it could be wonderful, at least in the short term. It is like a sugar high;it feels good for a while, but then you crash. Healthy inflation is like a carbohydrate that gives you long-lasting energy. it is about balance. If rates rise too quickly, it could slow the economy.
rising interest rates are normally related to inflation. so central banks have to act to control the predicted inflation.higher interst rates tend to modirate economic growth. they increase the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending. the quick increase have the following effects:
increase the cost of borrowing, increase in mortgage interest payments, increase incentive to save rather than spending, it may increase thee value of the currency,they will effect both consumer and firms regarding consumption and invsetment. governement debt interest payments will increaase.
In a very precise wording, If the interest rates are increased too quickly, the society in general will suffers from "Economic Contraction", due to the decrease of credit demand.
Rising rates usually go along with inflation. And some inflation is good, but too much, too quickly can be bad. With regards to bonds, if rates rise too quickly, bonds that are already issued may be subject to panic-type selling. It would be great for new savers or those with current loans, bad for those who own bonds or those who have to borrow new money. In the short-term, things like home sales could suffer with the higher rates. On the upside, if we have wage inflation with the higher rates, buyers may buy anyway. Too much inflation can be bad too. Most inflation comes from wage inflation and that has been missing for years. If we do get too much inflation, it could be wonderful, at least in the short term. It is like a sugar high;it feels good for a while, but then you crash. Healthy inflation is like a carbohydrate that gives you long-lasting energy. it is about balance. If rates rise too quickly, it could slow the economy.
