This Oct. 2, 2014, file photo shows the facade of the New York Stock Exchange. The U.S. stock market opens at 9:30 a.m. EST on Thursday, Feb. 8 2018. (AP Photo/Richard Drew, File)
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The higher that deficits rise, the more likely it is that interest rates will surge, too, and undercut corporate profits, stock prices, consumer spending and the overall economy.The Fed's rate increases will likely lead, in time, to higher borrowing rates for consumers and businesses and likely slow economic growth.One tenet of modern economics has been that the government should run higher deficits during a recession to help the economy heal but then reduce those deficits when the economy is relatively healthy, as it is now.The Fed might have to respond by raising rates more aggressively to counter the stimulative effect of the spending increases.When a government borrows more, its increased demand for debt typically leads to higher interest rates charged on that debt.Now that the projected budget deficit for 2019 would equal possibly 5 percent of the economy -- a record percentage when unemployment is so low -- bond yields could rise further and herald higher rates on mortgages and other long-term loans.The first is that investors are adapting to higher rates that merely reflect strong economic growth.
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