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Reuters/Brendan McDermid
worried about rising rates
TIPPING POINTS

After a 40-year fall, rising interest rates threaten to shake the economy

Member exclusive by Allison Schrager

Interest rates—the price government, companies, and households pay to borrow money—have an extraordinary influence on economic activity. If interest rates go up, borrowing gets expensive and the economy slows because we have less money to spend and companies are less inclined to hire and invest. For lenders and savers, interest rates represent the return for lower-risk investments in savings account and US Treasury Bills, influencing their spending, the risks they take, and how much they value future investment.

The last forty years were an extraordinary time for the interest rates of American bonds, with both long and short-term rates trending down, fostering growth and easy credit. American bonds have become the world’s premier risk-free asset, owned by investors all over the world. But the tide is now turning, rates are starting to rise, and it could change the economy as we know it.