Cure for Economic Slumps Seen in Raising Rates: Cutting Research

The solution to weak economic growth may be higher interest rates.

That seemingly paradoxical remedy can apply if the cause of the slump is a confidence shock that cheap borrowing costs are failing to reverse, two Columbia University economists said in a report published this week. In such a situation, ultra-easy monetary policy risks making fears of deflation a self-fulfilling prophecy as spenders sit tight.