What happened

On Monday morning, shares of all major cruise line stocks were sailing higher. As of 11:35 a.m. ET, Norwegian Cruise Line Holdings (NCLH -1.04%) was up 8.4%, followed by Royal Caribbean (RCL -0.53%) jumping 8.6%, and Carnival Corporation (CCL 0.13%) edging into the lead with a gain of 8.7%.

You can almost certainly thank the Federal Reserve for that.

So what

For the past several weeks, the story on cruise stocks has gone something like this: Inflation is rising, and that means that cruises will cost more and generate more revenue, even as the value of cruise companies' heavy debt loads falls -- making it easier for cruise lines to pay down the tens of billions of dollars' worth of debt they racked up during the pandemic. (So that's the good news for cruise stocks.)

Now for the bad news. The government does not want inflation to rise. And in order to combat the rise of inflation, the Federal Reserve has been jacking up interest rates all year long -- by 0.25 percentage points in March, 0.5 in May, and 0.75 in June. The Fed had been mulling another 0.75-percentage-point increase later in July, but after the U.S. Bureau of Labor Statistics reported last week that inflation just hit a 41-year high of 9.1%, rumors began flying that the Fed would raise interest rates by a full percentage point.

This would be bad news for cruise stocks because the higher interest rates go, the more interest they have to pay on their debt.

But this morning, The Wall Street Journal reported a situation that's shaping up to be a sort of -- limited -- Goldilocks scenario for cruise stocks, one in which inflation will rise (making it easier to pay off debt) at the same time as interest rates don't climb too much. Specifically, the Journal reports that the Fed is currently "leaning against [a] full-point increase," and back to planning a rate hike of only 0.75 percentage points in July.

Now what

So long story short, the thinking today is that we might have a situation in which inflation runs hot, making debt easier to pay off, at the same time as interest rates don't go quite as high as they might otherwise go, reducing the cost of paying interest on the debt while it's getting paid down.

Good news, right? Except the difference between a 0.75-percentage-point interest rate hike and a 1-percentage-point increase really isn't that big. It still means the cruise companies' debt gets more expensive to service, costing Carnival about $273 million more per year, Royal Caribbean an extra $173 million, and Norwegian Cruise Line Holdings an extra $107 million. And chances are the Fed won't stop increasing interest rates in July, either, and the longer they keep rising, the higher those interest costs get.

To me, it seems like investors are getting a bit irrationally exuberant about today's news, and given that there's no guarantee the Fed won't raise interest rates by a full percentage point (all we know is that it's now "leaning against" that move), I kind of suspect that this surge in share prices for cruise stocks is an overreaction.