Would Higher Interest Rates Boost US Growth?

BERKELEY – Blackstone CEO Tony James recently published a column in the Financial Times titled “To revive America’s economy, raise interest rates.” This is a very bad idea.

Let us imagine that we have been transported to a parallel universe, one where the US Federal Reserve has not held interest rates at or near zero. Instead, this Fed has gradually raised interest rates for the past six years, and the federal funds rate is now 400 basis points higher than it currently is. Before looking at what this alternate-universe economy would look like, let us review what has happened in the real world.