Federal Reserve Bank of Boston | bostonfed.org |
Bank Administration, 7 January 2020
Low interest rates—why is this a problem?
▶ Nominal rate = real rate plus
inflation (target)
▶ Real rates appear to be low
▶ So on average, nominal rates
will be low in normal times
▶ The problem: Less "policy
space"—i.e. room to lower
interest rates during
recessions
▶ Recall: Funds rate today:
1.5-1.75%
Sources: Wall Street Journal, Haver Analytics.
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