Friday, December 18, 2015

The last time the Fed raised rates, credit markets collapsed and the economy went into recession

As the entire global economy waits with baited breath for the Federal Reserve’s rate announcement in a few hours, analysts are looking backward to what occurred in 2006 when the central bank last raised rates.  And interesting enough, the results were not good for anyone.
Greenspan used rate hikes between 2004 until June of 2006 to qualify his ‘irrational exuberance’ mantra as the housing bubble would reach its peak just a few months later.  And with this tightening of credit and liquidity, over the next year markets would soar as asset purchases pushed prices to then all-time highs, only to then unveil the fragility of a market that had only succeeded on the back of monetary infusion.
Welcome to 1936-37 and 2007-08.

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