Some economists are suggesting that the best thing the FederalReserve could do for the U.S. economy would be to raise interestrates for the first time in nearly a decade, mounting an argumentthat flies in the face of conventional economic wisdom.

Tightening, in light of the current circumstances, wouldactually be stimulative, on net, they argue.

“The reason [the Fed] should have raised rates in Septemberand the reason, failing that, that it should do so this month isn'tthat the economy can handle the pain but rather that it could dowith the help,” David Kelly, chief global strategist at JPMorganAsset Management, wrote in a recent research note.

Theconsensus view, steeped in decades of economic thought, maintainsthat higher rates encourage saving insteadof spending by households, which raises the cost of capitalfor businesses, weakening current demand. Higher interest ratescould also be a negative for asset values, as income generatedwould be subject to a higher discount rate. The ensuing negativewealth effect would be a drag on consumption. An increase ininterest rates is also typically accompanied by a rise in the U.S.dollar, which crimps competitiveness and weighs on production inthe tradable goods sectors.

But in practice, the effects of liftoff might well be differentthis time, some analysts contend.

For households and corporations, nonprice factors like creditratings or a lender's regulatory requirements are the farbigger constraints on activity than the cost of carrying debt, anda pickup in interest rates would help alleviate some of theseimpediments.

Kelly notes that aspiring homeowners have to meet three criteriato qualify for a mortgage: sufficient savings for a down payment,an acceptable credit score, and proof that they can make theirmonthly payments. That final component is the most susceptible torise along with interest rates, but is also “by far the easiest ofthose hurdles to surmount,” he wrote.

In fact, higher interest rates might actually add fuel to,rather than cool, the housing market.

Joe LaVorgna, chief U.S. economist at Deutsche Bank, observesthat higher interest rates would be positive for banks' netinterest margins, thereby inducing them to loosen the lendingspigots.

“Debt service is not the problem for people who want to take outa mortgage,” he said. “Lower rates and a flatter curve aren't goingto help the housing market too much if you can't get a mortgagebecause standards are still too tight.”

For households, this sequence of ultralow rates for an extendedperiod followed by a modest bump higher enables them to have theircake and eat it, too.

Mortgages and auto debt taken out in recent years have beenprimarily longer-term obligations with fixed rates, while mostinterest-bearing assets are short-term instruments that willprovide a greater boost to household income once rates rise,according to Kelly. So on the liability side, there's less scopefor rising rates to eat into disposable income, and moreupside on the asset side of the ledger.

“There's roughly $10 trillion in the banking system that'searning zero,” added LaVorgna. “Those people aren't investing inthe stock market; they're keeping their money in cash and spendingless because when you're in a low-interest-rate environment, youdon't buy more, you save more.”

A colleague of LaVorgna's, Deutsche Bank Chief Global StrategistBankim Chadha, recently put forward the view that lower ratesprompt households to save more, and therefore consumer spending isnot an effective avenue for stimulus through traditional monetarypolicy actions.

So higher rates, to a certain point, could prove a boon forconsumers—and the same is true for stocks, argues JPMorgan'sKelly. His analysis shows that rising rates from a low leveltend to be accompanied by rising stock prices, while hikes fromhigher levels typically happen in tandem with declines.

“When the Federal Reserve raises rates from low levels, it isgenerally taken as a sign of economic confidence—that the economyno longer needs the Fed's help—and that rising confidence isgenerally positive for stocks,” the economist wrote.

A rate hike that signaled increased confidence in theU.S.'s economic prospects could also conceivably shatter theconservative mentality that's pervaded corporate America, providingthe impetus for expectations and priorities to be reorganized.

“With the advent of the Fed promoting lower for longer has beena sense of complacency in the business community, more of a focuson financial engineering and balance sheet management vs. top-linegrowth,” says Jacob Oubina, senior economist at RBC CapitalMarkets. “There's a dearth of focus on revenue-generatingcapital expenditures, which is the traditional way successfulbusinesses have been run.”

The surge in corporate bond issuance, he notes, has been usedprimarily for share buybacks, mergers, and to drive bottom-linegrowth by reducing interest expenses. A hike could be justwhat's needed to change businesses' expectations, according to theeconomist.

A more pro-growth stance by businesses would likely entailcapital deepening (an increase in capital equipment relative to theworkers who operate it), Oubina added, which would further supporttop-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 wouldhave a positive psychological effect. “The Fed saying that theemergency is over and it's time to begin the slow, gradual processof normalization would make businesses, investors, and householdsmore confident in the outlook.”

And if the Fed wants to see a so-called Great Rotation frombonds into equities—which would presumably be a plus forstocks and spur a positive wealth effect—LaVorgna thinks theinitiation of a hiking cycle is a prerequisite.

“This is something that happens when people think the economy'sdoing better and the Fed's raising rates,” he says. “When you'renot guaranteed to not lose money on your bond portfolio, that'sgoing to help push people into equities.”

There is, however, a large caveat that accompanies this argumentthat a rate hike would equal an increase in accommodation:the extent to which liftoff from the FederalReserve might have negative effects outside theU.S. that spill back into the world's largest economyand could potentially mitigate any of the stimulative effectscited by this trio. Although none of these economists elected toidentify an inflection point at which rate hikes would serve as anet headwind on growth, all agreed that the first hike surelywouldn't be that moment.

“The medical profession has determined that two 4-ounce glassesof wine for a male adult is a healthy amount, not two bottles,”said LaVorgna. “We're just talking about trying to renormalize aneconomy that's effectively gotten used to zero rates.”

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