Is the Era of Ultralow Interest Rates Coming to a Close?

The Wall Street Journal writes on tomorrow’s FOMC rate announcement that “[a] long era of ultralow interest rates and bond-buying programs may be drawing to a close.” This is remarkable. The miniscule uptick from the .5-.75% range to a .75-1% range is hardly leaving behind ultralow interest rates. As can be seen in the chart below, a quarter percent rise in the Fed Funds rate will barely show up, when looking at rates from a longer-term perspective.
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With the latest GDPNow forecasts coming in at a paltry 1.2%, the idea that the Fed is simply going to continue any sustained effort to bring rates up to historically normal levels seems quite the exaggeration at the moment. The entire model relied upon by the Fed’s economists assumes that raising rates into a slow growth environment is precisely the opposite of what must be done. Of course, their models rest on indefensible foundations and they therefore can’t even explain where either real economic growth or artificial booms originate (nor can they distinguish between them).

This post was published at Ludwig von Mises Institute on March 15, 2017.