<p>Because interest rates have been at abnormally low levels for quite some time and the Federal Reserve bank is required to pay stockholders' dividends at 6 percent, the Federal Reserve must either issue or collect more money.</p>

<p>Both of these choices negatively impact the value of the US dollar as they both hurt the American economy one way or another.</p>

<p>A mild recession followed by a sluggish recovery may well lead to a politically initiated response that pressures the Federal Reserve to increase the money supply and inflation.</p>

<p>The reason the Federal Reserve concludes that interest rates rapidly increase is because they need the borrowers of this newly created money to pay back their loans sooner (to get their stockholders' 6 percent dividends).</p>

<p>Source:
<a href="http://www.federalreserve.gov/aboutthefed/section7.htm" rel="nofollow">http://www.federalreserve.gov/aboutthefed/section7.htm</a></p>

CC BY-SA 3.0
2016-06-08T04:48:37.150Z
2016-06-08T04:48:37.150Z
leo
<p>I came across this statement in a fairly official document, the phrase in bold does not seem consistent. I cannot contact the authors of the said document, so I am posing my question here. Here is the statement.</p>

<p>"Under a mild recession followed by a sluggish recovery and inflationary pressure, 
<strong>interest rates rapidly increase</strong> and <strong>yield curve flattens</strong>."</p>

<p>Why would interest rates rapidly increase? Is it understood that the interest rates here refer to the rates the Federal Reserve sets? </p>

CC BY-SA 3.0
2016-06-06T16:30:57.167Z
This question would be improved by linking to said document.
Giskard
CC BY-SA 3.0
2016-06-06T17:11:49.790Z
Unfortunately, this document is an internal document that I am not at liberty to share... and I also cannot contact the authors of the document...
DavidH
<interest-rate>
Interest rate and yield curve in a mild recession
DavidH
# Interest rate and yield curve in a mild recession

(Asked by: username_0 on 2016-06-06)

I came across this statement in a fairly official document, the phrase in bold does not seem consistent. I cannot contact the authors of the said document, so I am posing my question here. Here is the statement.

"Under a mild recession followed by a sluggish recovery and inflationary pressure,
**interest rates rapidly increase** and **yield curve flattens**."

Why would interest rates rapidly increase? Is it understood that the interest rates here refer to the rates the Federal Reserve sets?

**Tags:** interest-rate

> **Comments:**
> **username_1**: This question would be improved by linking to said document.  
> **username_0**: Unfortunately, this document is an internal document that I am not at liberty to share... and I also cannot contact the authors of the document...  

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## 1 answers

### Answer by username_2 on 2016-06-08. Score: 2

Because interest rates have been at abnormally low levels for quite some time and the Federal Reserve bank is required to pay stockholders' dividends at 6 percent, the Federal Reserve must either issue or collect more money.

Both of these choices negatively impact the value of the US dollar as they both hurt the American economy one way or another.

A mild recession followed by a sluggish recovery may well lead to a politically initiated response that pressures the Federal Reserve to increase the money supply and inflation.

The reason the Federal Reserve concludes that interest rates rapidly increase is because they need the borrowers of this newly created money to pay back their loans sooner (to get their stockholders' 6 percent dividends).

Source:
<http://www.federalreserve.gov/aboutthefed/section7.htm>


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