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Perhaps the Fed raised rates too much

Here’s a thought…maybe part of the reason the credit markets are in such bad shape because the Fed raised rates too fast and too high. Think about it—they started raising rates in June, 2004. It was a quarter point increase, from 1 to 1.25. Two years later, the Fed funds rate was up to 5.25. That’s four percentage points in only two years.

And who was affected by the increase in the Fed funds rate? Well, not corporations: They saw their rates fall over this period. Conventional mortgages edged up by half a percentage point. Credit card interest rates rose by about a percentage point.