Sep 04

Were Low Interest Rates a Good or Bad Thing?

Were Low Interest Rates a Good or Bad Thing?

 

Were Low Interest Rates a Good or Bad Thing? Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net

Were Low Interest Rates a Good or Bad Thing? Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net

“Could the Fed’s low interest rates come back to bite us?” That’s the question Bankrate.com recently posed to leading economists.

The Federal Reserve has kept key interest rates basically at zero since December 2008, which has also helped keep mortgage rates at historically low levels. But will the decision of Fed Chair Janet Yellen and policymakers to keep interest rates low for so long end up setting the stage for a new crisis in the future?

Many economists, including National Association of REALTORS® Chief Economist Lawrence Yun, said that the low interest rate environment didn’t set the economy up for doomsday in the future.

“[The Fed] needed to get the economy going before everything else, and the zero interest rate policy accomplished that,” Yun told Bankrate.com. “The asset price increase in home prices could have been relieved with increased housing starts, but that is outside of the Fed’s purview.”

David Crowe, chief economist of the National Association of Home Builders, also told Bankrate.com that he felt the low interest rates won’t end up doing more harm in the end.

“A weak recovery is a closer danger than runaway inflation,” he said. “Current levels of continuing slack in the labor market point to a low inflation risk.”

Some economists believe the low interest rates may pose a problem in the future when the Fed does start raising them, which is largely predicted to be on the horizon in the coming weeks.

“People now believe the current levels of rates are normal rates and value any changes as slowing the economy rather than easing up on the gas pedal,” says Joel Naroff, president of Naroff Economic Advisors. “Think of housing, where people say a 5 percent mortgage rate would ‘crush’ the housing market.”

Read what other economists had to say at Bankrate.com.

Source: “Economic Indicator,” Bankrate.com (September 2015)

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