For US banks, the Federal Reserve has been playing hard-to-get with their interest rate. Keeping a near-zero interest rate for prolonged periods has meant banks not only offer little to their customers in earned interest and they similarly gain little from customers in interest paid. For anyone buying services from a US bank, the situation with basement level interest rates becomes murky. Sure, you can’t expect to even match inflation with a savings, money market, or even CD account right now, but you can also buy a house at interest rates that seemed impossible for homebuyers in the early 1980’s.
Unemployment in the US has dropped to 5.5%, yet the Fed insists on keeping interest rates down until wage levels improve. Sure, more people are employed, but they aren’t getting paid enough, so says the Fed. The sheer number of jobs can only be so important when considering the health of a nation’s economy, and the amount each person is paid may be even more important to fiscal policy than how many of them have jobs. The interest rates in the US don’t just apply to local banks and their customers. Asian markets are having a hard time dealing with the never-ending question of when the Fed rate will ever go back up. Additionally, the value of the dollar has risen to 121.36 yen. A stronger dollar and low domestic demand could indicative of an even bigger problem for the United States: secular stagnation.
Land of the Free, Home of the Stagnant
Developed economies suffer from secular stagnation when going through a period of perpetually weak demand. This demand usually results from a combination of factors hitting the US right now: pessimism about the future, economic inequality (see wages above), an aging population, slow productivity growth, etc. These come together to make a perfect storm of low growth, low inflation, and low interest rates. But is it really all that bad to have low interest rates?
