As the Federal Reserve navigates its post-pandemic monetary policy, a crucial debate has emerged: has the era of very low interest rates, which defined much of the past two decades, come to an end?
For years, low rates were a hallmark of global central bank policy, driven by subdued inflation and slow economic growth. However, the surge in inflation following the pandemic and the Fed’s aggressive rate hikes have raised questions about whether the economic landscape has fundamentally shifted.
Source:- bbc news
Some Fed officials and economists argue that the factors that supported low rates—aging populations, globalization, and technological advancements—still exist. They suggest that once inflation stabilizes, the neutral rate of interest, which neither stimulates nor slows the economy, could return to pre-pandemic levels.
Source:- bbc news
Others contend that structural changes, including deglobalization, higher government debt, and the transition to green energy, may sustain higher inflation and rates for years. These changes could push the neutral rate higher, altering the Fed’s long-term policy framework.
The debate carries significant implications for financial markets, government borrowing costs, and consumer behavior. A prolonged era of higher rates could challenge the housing market, corporate investments, and valuations in equity markets, while benefiting savers with better returns.
Fed Chair Jerome Powell has noted the uncertainty, emphasizing the need to remain adaptable. The central bank’s upcoming decisions will depend on how inflation and economic growth evolve in the coming months.
While the answer remains unclear, one thing is certain: the Fed’s path forward will shape the future of the global economy and determine whether the low-rate era is truly a relic of the past.
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