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Comment by mlsu | Hacker News Reader

I heard a while back the idea that interest rates are a proxy for stability.

That more stable societies support low interest rates, because in a stable society, money is more likely to be paid back 1, 5, or 10 years from now.

Does the sharp rise of interest rates in the past year indicate that we are existing a period of prolonged stability and entering a period of relative instability?

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This is probably a good way to think about it, but it's not a straight scale of 0% good and 100% bad. There's a goldilocks zone in there, things above that are bad for instability, and things below are bad for lack of caution.

The rise is a correction that rates have been artificially low for 5-10 years, because the massive growth with no real risk assessment was addictive. If Fed rates get around 5% or more and they are still hinting at increases that's probably a bad sign for the long term. Short term instability already is happening.

That assumes interests rates are set by the free market, which is not true in todays economy.

The reason interest rates are going up is not a mystery. A dozen people meet semi-quarterly and vote on what the interest rate should be.

I’m not sure your point contradicts the hypothesis though. Stability is the whole point of macroeconomic policy, and central bankers instituting a high interest rate is absolutely a sign that they believe some instability is coming.

Did the US become more stable during Covid or during the financial crisis? No - quite the opposite.

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