In theory interest rates should be set at a level which keeps demand in balance with supply, but isn't so high that they're out of line with economic fundamenta

In theory interest rates should be set at a level which keeps demand in balance with supply, but isn't so high that they're out of line with economic fundamentals. For example, imagine I were to say, "the US economy is so strong today consumers can afford 7% mortgage rates". This is obviously laughable. The underlying economy isn't strong enough to support anything even close to those kinds of rates, but because of excessive fiscal and monetary stimulus over the last couple of years the consumer has high savings, low debts and extremely low 30-year fixed rate mortgages - the Fed could raise rates to 50% and for a large percentage of US consumers today it would make practically no difference. Similarly with the US being a consumer economy so long as the consumer is strong businesses are generally going to be fine. Some overleveraged companies might go under, but those with healthy balance sheets will likely do better than ever, keeping the labour market robust. The problem we have today is that rates are now way too high relative to underlying economic strength, yet are doing close nothing to address the supply / demand imbalances we're seeing. In fact they're at levels so high it wouldn't just slow demand but kill it dead were anyone actually forced borrow at them. And yes, eventually some people will have unexpected expenses which they'll need to put on credit cards, and from time to time people will need move and be forced to try to afford a mortgage at a much higher rate, but that's going to take quite some time given robust levels of savings and otherwise historically low mortgage servicing costs. https://fred.stlouisfed.org/series/MDSP https://fred.stlouisfed.org/series/MDSP I guess what I'm saying is that the Fed has no effective tools to address this. The US consumer is almost completely insensitive to interest rates moves right now. What I'd argue we actually need is fiscal measures such as tax increases and spending cuts to force down economic demand. Should rates keep rising though (which is likely given the Fed never seems to have any idea what they're doing) then eventually someone's risk model will blow up because these are unprecedented moves we're seeing in the treasury and FX market today. Expect people in developing countries to starve and expect a series of financial crises in developed economies. Of course I hope that doesn't happen and I hope eventually the Fed sees sense, but this does seem to be the path we're on today.