The recent strength of the stock market and exchange traded funds (ETFs) has come with a price: rising interest rates. But how exactly will this affect the overall health of the economy?
Several economists believe that a rise in interest rates could potentially undo the recovery of corporate profits and the housing sector, two areas that equity investors have been banking on as they bid stock prices higher. This could potentially be detrimental and send the markets in another downward spiral.
To add fuel to the fire, a surge in interest rates makes it harder for individuals to obtain mortgages and fattens up an already outrageous amount of debt held by the federal government, adding costs to the taxpayer.
Now that we know the effects of a hike in interest rates, what exactly is causing it? Michael Cosgrove, a Dallas economist, suggests that interest rates are rising because the fear factor in the global economy is starting to fade. There is also a huge supply of Treasury debt that is coming to the market, reports Mark Trumbull of the Christian Science Monitor.