How Lower for Longer Rates Can Ultimately Backfire

by William White of The Institute for New Economic Thinking

How lower for longer rates can ultimately backfire AND why the problem we are fighting isn’t potential runaway inflation but potential deflation. Fascinating research from William White, ex-BIS economic adviser.

"There are several reasons why unprecedentedly low interest rates will probably not stimulate demand and may even threaten financial stability"

"The short-term interest rates set by central banks in advanced economies (above all the Federal Reserve) have been trending down for decades. Indeed, they reached record low levels in both nominal and real terms, and then stayed there for a decade, after the onset of the Great Financial Contraction in 2008. Moreover, with short rates somewhat constrained near zero, central banks then turned to increasingly experimental policy instruments to stimulate spending. Since the pandemic, monetary policy has been eased even further. Central banks have justified these historically unprecedented policy measures as being necessary to offset inflation rates that have persistently undershot inflation targets. "

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How Lower for Longer Rates Can Ultimately Backfire

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