Recent history shows that the Fed starts raising interest rates and then goes just a bit too far. They're like a driver who won't stop rhythmically pressing and releasing the gas pedal, until the passengers get motion sick.
In my opinion, the tax cut that has been benefiting the economy is the move away from zero percent interest rates. Lending to banks at below inflation is like a tax that goes directly to them. But when we keep on raising short term rates above inflation, that's going to be like a tax too, and I expect we will promptly get whiplash since the Fed doesn't know when to stop.
Maybe I am becoming a crank, because I feel Cassandra-ish, like major macroeconomic problems are so simple but nobody gets it. Feel free to explain why I am totally wrong.
The tax cut is like sugar at a birthday party. It will cause a short term boom, but soon enough that stimulant will be adjusted for, and when the recession comes, the government will have less flexibility to use fiscal stimulus to restart growth.
Furthermore, to finance that tax cut, a lot of money is being borrowed. When government is out there shilling its bonds, this crowds out investment into corporate bonds and equity, depressing growth.
