Rising Interest Rates
You might already know how interest rates affect your finances. But you might be wondering how rising interest rates can be a recession warning sign — yet, also indicate a growing economy. To understand this concept, you first have to know what the natural interest rate is.
“There is an idea in economics called the ‘natural interest rate,’” said Beckworth. “This is the underlying value interest rates would naturally take given the fundamentals of the economy. The Fed’s job is to try and align itself with this unobservable rate.”
And that’s the tricky part that can cause trouble for the economy. “What this means is that for interest rates to be raised too high and cause a recession, they have to be raised above the natural interest rate,” he said.
