The procyclical forces behind the Fed’s rate hike train

This is today's links post. And I want to highlight a theme that runs through several links today. That's pro-cyclicality. One reason I am not bearish on the US economy yet is because I think a lot of pro-cyclical activity accompanies the initial surge in interest rates. In this particular cycle, we are now seeing both fiscal and regulatory policy acting pro-cyclically as well with Trump as President.

Later in the cycle, as rates march higher, earnings will materially erode, financial distress will hit Ponzi borrowers, and default rates will start to rise. That's when we will see layoffs and the potential for recession.
Interest income works pro-cyclicallyYou've probably heard me say this before, but the private sector is a net receiver of interest. That means, all else equal, rising rate...


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