The surge in corporate bond issuance, he notes, has been used primarily for share buybacks, mergers, and to drive bottom- line growth by reducing interest expenses. A hike could be just what's needed to change businesses' expectations, according to the economist.
A more pro-growth stance by businesses would likely entail capital deepening (an increase in capital equipment relative to the workers who operate it), Oubina added, which would further support top-line, productivity, and economic growth.
"How good can the economy be if rates are still at zero?" quipped Deutsche Bank's
LaVorgna, agreeing that liftoff would have a positive psychological effect. "The Fed saying that the emergency is over and it's time to begin the slow, gradual process of normalization would make businesses, investors, and households more confident in the outlook."
And if the Fed wants to see a so-called Great Rotation from bonds into equities—which would presumably be a plus for stocks and spur a positive wealth effect—LaVorgna thinks the initiation of a hiking cycle is a prerequisite.
"This is something that happens when people think the economy's doing better and the Fed's raising rates," he says. "When you're not guaranteed to not lose money on your bond portfolio, that's going to help push people into equities."
There is, however, a large caveat that accompanies this argument that a rate hike would equal an increase in accommodation: the extent to which liftoff from the Federal Reserve might have negative effects outside the U.S. that spill back into the world's largest economy and could potentially mitigate any of the stimulative effects cited by this trio.
Although none of these economists elected to identify an inflection point at which rate hikes would serve as a net headwind on growth, all agreed that the first hike surely wouldn't be that moment.
"The medical profession has determined that two 4-ounce glasses of wine for a male adult is a healthy amount, not two bottles," said LaVorgna. "We're just talking about trying to renormalize an economy that's effectively gotten used to zero rates."