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I think you answered your question in the sentence above. If the fed keeps interest rates low, and we still hit another recession, they won't have the ability t
by aceinaday 9y ago
I think you answered your question in the sentence above. If the fed keeps interest rates low, and we still hit another recession, they won't have the ability to react by lowering rates again.
- EGreg 9y agoBut if reacting and lowering them will ease the recession, why not just keep them low in the first place? That way the recession doesn't materialize. Maybe raising interest rates is what causes the recession in the first place!
- krrrh 9y agoBecause they tried that and it ended up in inflation and slow growth. The Phillips curve broke.
- fwdpropaganda 9y agoRaising interest rates is what causes a recession. But if you don't lower two bad things eventually happen: large inflation and associated of purchasing power, and debt keeps on ballooning. Regarding the second point, you always have to deleverage sooner or later. The current view is that sooner and smoothly is better than later and abruptly.