The markets do set interest rates on assets. The discount rate is just the rate of loans the Fed offers. The markets have decided to base their rates on the dis

The markets do set interest rates on assets. The discount rate is just the rate of loans the Fed offers. The markets have decided to base their rates on the discount rate. Voila, the markets are at work! I suppose letting the architects of the housing bubble (who also didn't predict it) set the discount rate is preferable? Not having the ability to adjust the central interest rate has resulted in recessions in the past. It means every recession could be a depression. Interest rates would increase dramatically right as we desperately need them to lower to prevent the economy from going into a tail spin. Economics is so much more than simply worshiping the invisible hand - if it was nobody would need to get a degree in it. We also need to understand when and how market failures occur.