Era of low interest rates fails to generate expected growth

Economy

Fed_2576507b

By Sam Fleming

In a world characterised by flagging growth, the US is leading the transatlantic economies from their deepest post-second world war recession thanks in large measure to the Federal Reserve’s historically unprecedented stimulus policies.

But nearly seven years after the central bank cut rates to near-zero, policymakers from the Fed’s crisis-era response team say low rates and quantitative easing have failed to generate the vigorous economic bounceback they expected.

Deepening the conundrum over whether to raise rates from their historic lows, inflation figures have stayed moribund even as the economy hits what the Fed believes is full employment. Meanwhile, patches of the financial markets are heating up, buoyed by historically cheap borrowing costs, and challenging the economic models central bankers traditionally rely upon.

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