Are higher rates potentially more dangerous with the bubble-like housing market?
Henry McVey: The key is employment. You typically don’t have a major downturn in housing without a fall-off in jobs. Can consumers handle more debt? Lisanti: What is very interesting is banks have been very aggressive in raising rates. The interest rates on some credit cards are now 24%, not 1% (like the fed funds rate back in June 2004). So we don’t know how the consumer will react. Tom McManus: I keep on going back to a comment that Greenspan made in response to a question: that he thinks everyone understands that interest rates are moving up by now. It is interesting to consider how consumers treat an expected rise in interest rates relative to investors. If you tell bond investors rates are expected to rise, most will say, “Well, that means the expected return on my investments will rise and, therefore, it is probably good for me to hold off on making investments today, because I will have a higher expected return if I invest at a later date.” If you tell consumers rates are expect
