Former Federal Reserve Chairman Ben Bernanke suggests that despite expectations of rising rates, low interest rates are here to stay for a while.
“Low interest rates are not a short-term aberration, but part of a long-term trend,” writes Bernanke in his new blog hosted by the Brookings Institution, for which he is a distinguished fellow in residence for the Economic Studies Program.
He explains that “real interest rates [adjusted for inflation] are determined by a wide range of economic factors, including prospects for economic growth — not by the Fed.”
The Fed influences market rates by controlling the money supply, which sets the Fed’s short-term rate, and that has remained between zero and 0.25% for more than six years.
Bernanke writes that the Fed’s best strategy is “to set short-term rates at a level consistent with the healthy operation of the economy over the medium term,” which he terms the “equilibrium real interest rate.” In technical terms it’s the interest rate, minus inflation, that’s “consistent with full employment of labor and capital resources,” writes Bernanke.