Interest Rates Low Because of Impending Doom, or the New Normal

I read this story today in the Huffington Post. The point of the story was that the Federal Reserve is keeping interest rates low because they can see impending economic doom in our future.

Reporter Daniel Marans includes a lot of data and graphs and quotes, but it comes across as pseudo-economics. So I wondered about Paul Krugman’s take on the Federal Reserve decision to not increase interest rates.

Krugman took a very different view, he said that it’s poppycock to blame the Fed for keeping interest rates low, and that low interest rates are the new normal.

Nothing in the economic situation suggests that rates are too low right now. And don’t tell us that we need to start “normalizing”: all indications are that “normal” has changed a lot since 2008, and trying to set interest rates as if the old normal were still valid is a recipe for very bad outcomes.

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