bond holders — a powerful political constituency that includes financial firms, investment funds and wealthy individuals — generally want the Fed to raise rates sooner rather than later, and they have ample opportunity to dominate public discourse. Their aim is to pre-emptively attack inflation, which diminishes the value of their bonds.Inflation is not the only thing that can diminish the value of bonds, and so holders of different kinds of bonds might view interest rate increases in different ways:
- Holders of long-term bonds who might want to liquidate them before maturity definitely do not want the Fed to increase interest rates, since rate increases automatically decrease the market price of a bond.
- Holders of corporate bonds are sensitive to default risk, which would increase in a recession triggered by a rate increase.
- Investors intending to hold bonds with low default risk to maturity might welcome the opportunity to reinvest at higher rates.
- Holders of Treasury Inflation Protected Securities are indifferent to inflation, but dislike rate increases, since they reduce the principal value of their bonds.
There is plenty of legitimate disagreement about Fed policy, but it is silly to caricature the disagreements in Marxist terms.
On the other hand, there are institutions that benefit from higher rates: government regulated banks. Because deposits are insured and subsidized, banks have access to nearly free money to lend. They also receive cheap money from the Fed, Federal Home Loan Banks, and other government sources. When rates rise the cost of these sources of funds stays low, but rates at which they can lend increase, raising bank profits. Banks that rely on less regulated sources of funds like CDs can run into problems in high interest rate environments, but in general regulation tends to push them into favoring higher rates.
The New York Times should oppose regulators, not bond holders and rich people if they want to keep interest rates low.