Economics: Are Interest Rates Really Too High?

 

(Drivebycuriosity) - There is a lot ado about the Federal Reserve interest rates. Many claim that they are too high and might cause the next recession. Are the critics right?.

According to the textbooks high interest rates slow the economy because they discourage borrowing and investing. Do they? This post uses statistics by the Federal Reserve Bank of St. Louis ( fred.stlouisfed).

 

 

On top of this post you can see the growth of the money supply in the recent years. Money growth ended April 2022 and the money supply dropped in the following months, partly as a response to the interest rate hikes of the Federal Reserve (image above this paragraph). It bottomed October 2023 - since then the money supply is rising again - and the rise is accelerating! (image below).

 

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The Federal Reserve also reports that the volume of bank credits jumped in the recent months, in spite of the "high" interest rates (image below). The borrowed money lands on the accounts of the bank customers and adds to the money supply (the sum of currency in circulation and short term accounts at public banks).

 

 ( source)

Credit card loans are also climbing swiftly, withstanding the interest rates. These payments land on the bank accounts of sellers who accept credit cards and are driving monetary growth as well (image below).

 

 ( source)

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These numbers fit to other solid economic data, like the steady growth of the job market and the continuous rise of the GDP. The numbers may also explain the stubbornly high inflation rates.

The Fed rates are much higher than in the recent past - and they feel too high. But none of the economic indicators signal tight money - rather the contrary.