Anybody can shed some light on what is the long term consequence of high interest rate (say >4%) for US economy ?
This post about sums it up:
In very simplified terms, the higher rates acts like a paper shredder for money. It takes cash out of circulation(therefore out of the economy). That extra 1.1k in the above example will end up as principle/interest paid to the mortgage lender(which ultimately gets deposited with the central bank and shredded). This means 1.1k less for the buyer to spend on a new car, remodeling their home, paying for jewelry, vacations, bitcoin/stocks/NFTs, etc.
But whats similarly likely to happen is the borrower above might not be able to afford the 1.1k extra month, so they buy a cheaper home or spend less, therefore lowering bids for assets and hopefully result in lower inflation over time.
Now you can apply the same to companies trying to expand production or increase R&D by taking out business loans or other funding sources. What you ultimately have is spending dropping across the entire economy and a likely recession