Growth has already slowed in recent months. An increase in borrowing costs would reduce spending even more. Lending would slow as cash left the financial system, potentially ushering in another credit crunch similar to the one that helped spark the previous recession. Even if declining growth alone wasn’t enough to send the economy back into recession, the resulting credit crunch would administer the coup de grâce.
This could force the Federal Reserve to initiate a third round of quantitative easing to inject money into the banking system.
