Abstract percentages hide real suffering. A "dire rate bad" that is too high means:
A "dire rate bad" that is too low means: the dirate bad
The "bad" is always paid by the most vulnerable: the indebted, the unhedged, the cash-dependent. Abstract percentages hide real suffering
The Fed kept rates near zero from 2008 to 2015, and again from 2020 to 2022. While necessary initially, the prolonged low-rate environment after 2012 arguably inflated asset prices, encouraged risk-taking, and worsened income inequality (the rich own assets; the poor own labor). By 2021–2022, this "bad" manifested as 9% inflation – the very thing low rates were meant to prevent. A "dire rate bad" that is too low means:
Conversely, rates held too low for too long – near zero or negative – create a different "bad." Cheap money floods into speculative assets (stocks, real estate, crypto), inflating bubbles. Savers are punished, undermining pension funds and insurance companies. Eventually, the economy becomes addicted to stimulus. When rates must rise, the withdrawal triggers crashes. The 2008 financial crisis was preceded by a long period of exceptionally low rates that fueled the US housing bubble. The "bad" here is deferred pain, but it is no less real.