Long-term interest rates and oil prices will fall and the U.S. dollar will become stronger than expected. The Federal Reserve says there is a basic and relatively low rate at which the economy can grow without igniting inflation. In fact the economy has been growing well above that rate for years. This month we will set a new record for the longest U.S. economic expansion in history. So far the long expansion has not ignited inflation.
Economists know that fierce competition prevents businesses from raising prices.
They also know that quantum increases in productivity, thanks to new technologies, has allowed corporate profits to grow without price increases. Still, many economists are alarmists, warning that major interest rate and inflation increases lie just ahead. At least one economist, John Makin of the American Enterprise Institute, worries that the Fed will puncture the stock market bubble, precipitating a nasty stock market plunge, followed by a recession brought on by too much debt, high interest costs and shrinking liquid assets. Makin's warning is not to be dismissed out of hand. He has history and a lot of current reality on his side.