These industries that are, therefore, driving our economic growth may in turn be subject to more inflation than economic statistics suggest. With low inflation rates, interest rates are unlikely to increase. In fact, according to Fed Vice Chairman Alan Blinder s latest commentary, as long as inflation remains near current levels, it is probable that interest rates will decrease further. This would serve to stimulate the sluggish consumer sector. Our investment posture right now could best be described as economically positive, market cautious.
Low rates make borrowing attractive for both individuals and institutions.
They also tend to support higher stock market valuation levels. Without inflation spiking first, not much. One possibility would be that the Government dramatically increases deficit spending, thereby increasing the supply of debt for sale at the next auction. With even liberal Democrats talking about fiscal responsibility, this seems unlikely. The more likely danger is that we all get more fiscal responsibility than we bargained for, either in the form of tax increases, which will slow the economy, or major cuts in fiscal spending, which will also slow the economy and throw a lot of people out of work.