Commentary
We have all been taught to associate low money rates with stimulus, and especially high money rates with trouble. And that can be true under certain circumstances. This theoretical world of easy interpretation doesn’t exist outside of the media or central bank econometric models.
History—even recent history—at the very least cautions for a more nuanced approach.
Take, for example, the situation in December 2007 when the Federal Reserve, under the leadership of its still-relatively new Chairman Ben Bernanke, began to figure out subprime wasn’t contained (because it wasn’t about subprime). After the clear breakdown on Aug. 9, the Federal Open Market Committee (FOMC) had simply followed its instruction manual: August (primary credit), then September (federal funds target) rate cuts, and a clear “message” for more “aid” in the form of same going forward….