Pedal to the metal is the new normal
by David Atkins
It’s remarkable that this is treated as humdrum news these days:
The Federal Reserve said Wednesday that it was likely to leave short-term interest rates at rock-bottom levels at least through late 2014, pushing out its easy-monetary policy even further into the future than previously indicated.
In a statement at the end of its two-day meeting, policymakers at the central bank acknowledged the recent improvements in the economy but said that they expected “economic growth over coming quarters to be modest” and the unemployment rate, currently 8.5%, to decline “only gradually.”
The decision was what many analysts had expected.
Since August, the Fed had said it was likely to keep the federal funds rate, which broadly influences rates on loans for businesses and consumers, at near zero “at least through mid-2013.” Financial markets, however, most recently have been betting that the shift won’t happen until early 2014.
People tend to forget that a zero federal funds rate is supposed to be an emergency measure. Low interest rates help people afford to buy houses and other investments, but they hurt traditional savers. People who speculate on homes and stocks do better, while people on wage income with CDs and savings accounts get screwed, further incentivizing the bubble economy. It’s a pedal to the metal approach to keep asset values as inflated as possible while doing nothing about wages. But beyond even more “quantitative easing”, there’s no farther for the Fed to go on this front even to reinflate assets.
We’ve been at “pedal to the metal” for years, and we’re apparently going to stay there with no end in sight.
That’s not to say that a zero interest rate environment isn’t necessary during a major recession. It probably is. But a zero-interest rate environment for years and years on end during a largely jobless recovery is more proof that the economy is broken. There’s an argument to be had over whether the governmental and financial elites in this area are greedy, incompetent or both. But the notion that they deserve unquestioned respect as arcane priests of economic wisdom is ludicrous.
They’re essentially throwing every asset-inflating policy against the wall to see what sticks, and praying something works.
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