Do higher rates really hurt Main Street more than Wall Street?  I’d argue we need to raise rates to loosen up the finish on profligate single-family home and multifamily “investors” who bought at ridiculous cap rates – like sub 4%. 

Lower rates, by definition, raise asset prices.  Also, in lower rate environments, non-recourse type private equity firms and individuals with more unlimited capital means and relationships are able to acquire assets more easily than the normal home buyers.  And many of these borrowers figured out the key to finding unlimited bank capital was through smaller banks.  While many nailed the timing and threaded the needle, many massive borrowers came late and purchased SFH and multifamily homes at unconscionable cap rates (some at sub 4%!).  Those buyers simply jacked up rents to meet their Pro Forma underwriting thereby causing home inflation at the margins.

So I’d argue that we need to raise the rates and loosen up the finish on these companies – prep the wood for new primer and investors that target higher cap rates with lower rents.  Make making money hard again.

The counter argument is that higher rates bring higher rates to automobile and consumer loans, but the inverse should also happen to the underlying prices.  So roughly speaking, a $40,000 car at a 1% discount rate should be roughly a $37000 car at a 6% discount rate.

An additional argument would be that higher interest rates incentivize savings and real investment better, as individuals receive better returns on their deposits only taking those deposits out for real investment opportunities. This encourages a culture of financial prudence and more long-term financial planning with Main Street and Wall Street.  Additionally, higher rates lead to more cautious borrowing. Consumers and small businesses are more likely to take loans only for more viable and essential projects, reducing the risk of over-indebtedness.

Job growth may not be gangbusters anymore, but jobs are still plentiful.   Lowering rates would unleash and incentivize imprudence.

So let’s raise the rates a little more for the younger generations.