Commentary & Opinion

Are Interest Rate Hikes and Financial Stability on a Collision Course?

Economist David Levy: Mediocre prospects for profits and growth in next 18 months;
But no significant risk of home-grown recession

MOUNT KISCO, NY–(Marketwired – June 28, 2017) – Economist David Levy, writing in the June issue of The Levy Forecast┬«, said that “Fed interest rate hikes and financial stability are more clearly on a collision course, with higher interest rates a more potent and immediate threat to risk asset markets both at home and abroad than they were last December.”

The chairman of the independent Jerome Levy Forecasting Center LLC ( also advised clients that barring a surprise increase in federal deficit spending, “The U.S. economy has only mediocre prospects for profits and growth during the next 18 months, but there is no significant risk of a home-grown recession.”

Levy noted competing pressures on the U.S. stock market for the rest of the year, saying, “the stock market in the second half is likely to be hindered at times by soft earnings and by rising market perceptions of the Fed’s tightening schedule. On the other hand, the Big-Balance-Sheet-Economy pressures on investors to keep piling into bull markets will tend to keep the market going.”

Time to be extra careful…

Levy summarized, “It is time to be extra careful and to respect the power of bull markets to go on long, sometimes irrational runs, but also to respect the severity of the financial mess that the next downturn will unleash.”

Srinivas Thiruvadanthai, director of research, wrote in the same publication that in addition to a tightening labor market, lax global financial conditions could encourage faster rates from the Federal Reserve. Thiruvadanthai noted that “financial conditions are bordering on the exuberant . . . and the Fed may no longer be comfortable with further easing of financial conditions.”

Note: The full Levy Forecast is available to the press in PDF format by contacting Andrew Edson & Associates — or 516 850 3195.


About The Jerome Levy Forecasting Center
The Jerome Levy Forecasting Center LLC — the world leader in applying the macroeconomic Profits Perspective to economic analysis and forecasting — conducts cutting edge economic research and offers consulting services to its clients. The goal of the Levy Forecasting Center is to improve its clients’ business and investment performance by providing them with powerful insights into economic risks and opportunities — insights that are difficult or even impossible to achieve with conventional approaches to macroeconomic analysis. Additional information may be found at