>If they gave me the stick, I'd set interest rates at 3% and hold the line through a recession or depression. Far better that then coming to the end of the line

>If they gave me the stick, I'd set interest rates at 3% and hold the line through a recession or depression. Far better that then coming to the end of the line, having no options and no way out. It's a good thing you don't have the stick. I'd liken such a policy to the Taylor Rule, which can produce ridiculous results, but even that relies on macroeconomic data at all times. If your policy is such that 3% is the new lower bound, you have just created the lower bound you seek to avoid. At present, there is no lower bound. Many countries are employing negative interest rates to attempt to stimulate their respective economies. A notable exception is Switzerland, which maintains negative rates primarily to devalue its currency (of course the magnitude of the exception is debatable). While negative interest rates are not well understood, they are utilized. Central banks have additional tools at their disposal as well, like ON RRP, which means that talking about a single 3% rate is poorly specified. Ultimately though, we are encountering the limits of monetary policy and governments should be considering a fiscal approach, especially with such low interest rates. At a fixed 3%, fiscal policy is less appealing even when absolutely necessary.