The Fed’s Zero+ Interest Rate Policy Harms US Consumers
Monday, Steve Forbes warned that the United States will be mired in a “dismal” economy after the US Fed decided to hold current interest rates at Zero+.
“The Federal Reserve’s announcement that it will continue to suppress interest rates is going to harm the economy,” he wrote. “We will not be breaking out of the rut we’re in, which is bad news for us and the rest of the world,” he wrote.
The Fed decided last week to hold interest rates at Zero+.
That means borrowing costs will remain low, a prospect that has been boosted stocks for the past 6.5 yrs. But some participants, expecting the Fed would be confident enough to nudge rates up by at least 0.25 pt, interpreted the stance as a sign that the global economy is very weak.
“Under the Fed’s Zero-interest-rate policy (ZIRP) banks could not know the real price they should charge for loans, so they’ve made fewer of them to small-business borrowers and startups than they traditionally would have. Consumers have also suffered. Where credit has been extended, conditions have been tightened considerably,” he wrote.
“What’s also made this barrier to small and new business lending harder to overcome has been the fierce regulatory regime, primarily the Dodd-Frank bill, that was imposed after the panic. All this has made lending more expensive and scarcer to the very entities that have normally been the economy’s prime job creators,” he wrote.
The Fed has kept its benchmark rate close to Zero for almost 7 years. In that time, US stocks have nearly 3X from their financial crisis low. The Fed meets again next month and in December.
“The Federal Reserve thinks its Zero+ interest-rate policy stimulates the economy, but it’s actually doing the opposite. It’s the equivalent of bleeding an anemic patient.”
Stay tuned…
HeffX-LTN
Paul Ebeling
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