
Why are interest rates so low? - forrest_t
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low
======
colund
Why the obsession of economic growth? In Sweden we currently have negative
prime interest rate and people have higher salaries than ever and housing
prices are all time high.

This greed doesn't lead to less global warming or happier people. I think
politicians and economists should start thinking about what actually makes
people happy. Economics is efficient management of resources nothing else.
Giving the population ability to stay healthy with affordable health care,
moderate taxes and stability should be a main priority.

~~~
jseliger
_Why the obsession of economic growth?_

One alternate question might be, "At what point in time do you consider the
economy to have become 'big enough' that you don't care about growth?" Today?
2000? 1990? 1970?

The people who might think today is "big enough" might also have thought that
say 1990 was big enough, and yet very few people would want to be limited to
1990's tech / culture. It seems reasonable to imagine that people in say 2050
will look back on benighted 2015 and marvel at the shit we had to put up with.
What gets us from today to 2050? Economic growth, which is likely tied into
lots of other things (like science, production, entrepreneurship, etc.).

~~~
enraged_camel
You can have technological, scientific and cultural advancement without
economic growth.

Building more shopping malls out in the suburbs leads to growth, but it
doesn't advance society.

~~~
collyw
I have discussed this with friends recently. Why do we need growth?

I don't need a faster iPhone, or more tech. I honestly don't see my life being
any better for the last ten years worth of "growth" (much of which seems to
have been pumping up asset prices).

I would quite like to relax and coast a bit in life, but with the constant
chasing of growth by everyone else, standing still means you will get left
behind (i.e you will become poor).

~~~
pdonis
_> I don't need a faster iPhone, or more tech._

Maybe you don't, but lots of people do, as evidenced by the fact that they pay
for it. If you don't need it, then don't pay for it.

 _> the last ten years worth of "growth" (much of which seems to have been
pumping up asset prices)_

This is true, but faster iPhones and other tech weren't what did that.
Investment banks did that, by playing risky zero-sum games with other people's
money.

 _> with the constant chasing of growth by everyone else, standing still means
you will get left behind_

Really? You need a faster iPhone just to keep up?

~~~
Retra
>Maybe you don't, but lots of people do, as evidenced by the fact that they
pay for it. If you don't need it, then don't pay for it.

That's not really how it works. I will get a new phone when mine dies because
(A) I need a phone and (B) the phone I have isn't being made anymore.

Does this means I am paying for 'more tech'? If you do not keep buying new
stuff, you don't stagnate, you regress. If I don't want new technology, I have
to go with no technology, not the same-old technology.

~~~
pdonis
_> I will get a new phone when mine dies because (A) I need a phone and (B)
the phone I have isn't being made anymore._

But you'll still have a pretty wide range of choices; last I checked, not
every phone available was a smartphone, let alone an iPhone. Granted, the
exact model you had before won't be there, but that's true of just about
anything. My car is a 2002 model; I'm going to have to get a new one pretty
soon, and I certainly won't be able to buy the same model. But I'll still have
a pretty wide range of choices; it's not as though I'll either have to buy a
luxury model or go without.

 _> If you do not keep buying new stuff, you don't stagnate, you regress._

Well, of course; stuff wears out and dies, so you have to get new stuff, and
the new stuff won't be the same as the stuff you used to have, because stuff
is always changing. Everything wears out eventually; that's just a fact of
life. But nobody is forcing you to get the fanciest phone available, or the
fanciest anything else.

------
roymurdock
Consider the simple aggregate production function: Q = zF(L,K) where Q is
output, z is the level of technology, known as Total Factor Productivity
(TFP), L is labor, and K is capital.

Sustainable economic growth is driven by increases in z, TFP which drives the
production function. Government investment in education, R&D, healthcare, and
infrastructure increase TFP. There is a serious lack of gov't investment in
these areas. In my opinion the share of capital (K) in the equation has grown
far beyond what is healthy. Solow posits that capital attracts capital [0]. We
have not done enough to offset this natural tendency, and we are seeing the
result - huge and constantly growing wealth & income inequality.

The economy is growing in an unsustainable fashion. There is a serious lack of
"good", sustainable investments in the global economy. One example of this is
investor's willingness to pay the Swiss central bank to hold their money for
them. Investors are scared - they know a serious revision in value is bound to
occur.

Many parts of the EU are beginning to flirt with deflation. The top comment
mentions negative prime interest rates in Sweden that have not affected the
standard of living. This is very interesting given the traditional viewpoint
that any form of deflation, however minor, is an economic calamity. Maybe for
the central banks it is, as they lose control of one their control over the
setting of short term interest which has been their prime monetary policy
weapon over choice over the past 30 years.

Whatever happens, this is an interesting situation that I'm sure will inform
generations to come.

[0]
[http://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model](http://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model)

------
randyrand
The comments I see in this thread make me so upset.

HN has always been about making the world a better place. Doing things that
matter. Making lives better. We look forward to self driving cars, solving
heathcare, etc etc et.

Yet I read these comments and apparently HN isn't as concerned about progress
anymore. "Why do we need growth", "I'll take peace over growth at this point."

Are you crazy? When did we stop caring about growth? Making things better?
More efficient? Improving lives?

What a depressing comment thread.

edit: Some people are saying, but economic growth does not necessarily imply
tech progress. yes, economic progress does not have to come from technology
growth. You're right.

tldr: but it would be incredibly incredibly difficult (and perhaps provably
impossible in a free-ish society) to grow the economy without also encouraging
and making technological growth (also finding oil deposits, other discoveries,
etc)

Growth comes from a few things. 1, operating at max utilization. Full
employment. Going from 50% to 90% will grow the GDP. 2, saving. Saving what we
already have. Building bridges, long lasting homes, etc to that we can be more
efficient and focus on other problems in the future. Note, this does not
increase yearly GDP but it increases overall wealth per capita. For example,
many europeans live and benefit from homes that were built for them hundreds
of years ago. They're free to worry less about building homes and more on
improving other aspects of their lives. 3, technological progress.

While it's true gorwth != tech progress, its also certain that growing the
economy by #1 and #2 above will allow more room for people to work on #3. #2
is important. We can't work on nuclear physics before we build homes from
physicists to live in. Likewise #1 is important. for every person that becomes
employed, their handwork allows other people to focus on other things,
research. We need enough farmers to feed researchers. The more farmers, the
more researchers. So in a sense, you can, but it would be incredibly difficult
to grow the economy without also encouraging and making technological growth.

~~~
lsd5you
Growth!=Technological progress.

I'm not sure what else there is to say. Do you realise you made this logical
jump? Does it not need expanding upon or justifying? Do you not think it might
be the source of the difference other people have?

~~~
randyrand
To address growth != tech progress. You're right. per capita growth comes from
a few things. 1, operating at max utilization. Full employment. Going from 50%
to 90% will grow the GDP. 2, saving. Building on what we already have to
improve. Building bridges, long lasting homes, etc to that we can be more
efficient in the future. 3, technological progress (also finding oil deposits,
etc)

Tech progresss -> growth. That much is certain. It's certain that you cannot
continue to have technological growth without economic growth. Name the 10
most important technological advancements of the 1900s and try to explain to
me a scenario where those invention _wouldn 't_ cause growth. And its also
certain that growing the economy by #1 and #2 above will allow more room for
#3. So in a sense, you can, but it would be incredibly difficult to grow the
economy without encouraging and making technological growth.

~~~
randyrand
To further point #2. I think of it like an anthill. The antill might not have
_any_ growth if we look at it as a the rate of growth per year, (like we do
GDP), but it will still grow in size. Same applies for the GDP of society.

------
jellicle
It is worth also reading Paul Krugman's take on this blog post:

[http://krugman.blogs.nytimes.com/2015/03/30/ben-bernanke-
blo...](http://krugman.blogs.nytimes.com/2015/03/30/ben-bernanke-blog-
blogging/)

In particular Krugman notes that the average retiree has basically nothing in
interest earnings. The median retiree has a bit more than $100K in total net
worth (most of it in housing), and earns bupkis in interest.

~~~
Balgair
I mean, if that isn't the scariest thing out there in the US, then I really
don't know what is (excepting nukes, MRSA, and the like). That aging
population is going to wreak havoc on the economy, with the exception of elder
care. Oh, and when is that all supposed to be timed to go off? About 2030,
just in time for 9 billion other humans to go about their lives too, water
wars really starting to heat up, etc.

The 2028 and 2032 elections are going to be a hell of a thing as REAL politics
and compromise get going.

------
saosebastiao
Interest rates are low because inflation is low and central banks are
irrationally terrified of even mild deflation, fearing some sort of
hypothetical deflationary spiral (despite a complete lack of precedent). And
since the _rate of technological progress is increasing_ , and _technological
progress creates deflationary pressure_ , they have to work extra hard to keep
up.

Tell me, when was the last time you stopped buying milk because you noticed
housing prices coming down? Or stopped buying cars because you notice that
coffee is getting cheaper? Hell, when was the last time you stopped buying
coffee when you noticed coffee getting cheaper?

We really need to start challenging the idea that mild inflation is the only
acceptable monetary policy. At the very least, when considering the scariness
of some degree of deflation, we should use an inflation metric that excludes
consumables (as proven in repeated rounds of econometric studies that
consumable items have no decrease in purchasing rates during downward pricing
trends, and in fact have statistically significant increases in purchase
rates).

~~~
Mikeb85
The problem with deflation isn't that everyday things get cheaper, it's that
investments (like houses) devalue, which leads to people hoarding cash.

Now that's not to say it's always a bad thing. In Canada right now I'd argue
houses are way too expensive, and that market needs to correct itself. If
housing prices were to crash (and they very well might), they'd eventually
bottom out at a reasonable level, because many people who held off buying a
house when then buy one.

However if deflation happened year after year, and everyone expected that the
price of anything they bought would devalue, they might not buy it today.
Enough people do that en masse, and you have problems.

~~~
shard972
> and everyone expected that the price of anything they bought would devalue,
> they might not buy it today.

I don't see how this is different than today, there are not many things you
buy aside from a house that don't lose value over time.

~~~
RockyMcNuts
houses, factories, stocks, bonds, bank accounts... all generally expected to
provide a positive nominal return.

they provide a negative nominal return, you're better off hoarding greenbacks.

the zero interest rate policy already breaks the banking system. the payments
system was historically paid for just by giving the bank an interest-free
loan. If the bank can't reinvest above zero, there's no value in running a
branch network to collect deposits or running a payments system in exchange
for some float. the whole system is on life support because the Fed provided a
bank subsidy via interest on excess reserves. but the whole system, things
like money market funds, CDs, they make no sense in a negative interest rate
environment.

how about all those people with 30-year, 80% loan to value mortgages? the
value of the house goes down year after year, the real value of the mortgage
and the fixed mortgage payment goes up, they're going to have a pretty bad
time.

how about all the (much reduced) companies and municipalities that have
defined benefit pensions, or even life insurance contracts that assume a
positive, relatively risk-free return? all those pension funds and insurance
companies go bust.

how are people going to feel about periodic reductions in their wages? people
have a hard time with it, and wages and prices tend to be stickier going down
than going up. constant downward pressure makes people unhappy and is hard to
get used to, even if relative prices stay the same.

the expectation that prices are not going to consistently go down over time is
pretty hard-coded into the financial system and contracts and people's
psychology, and if it happened it would cause more disruption than higher-
than-expected inflation.

------
narrator
The interest on the national debt would increase to very large levels if they
were higher. The government would then have to borrow more. They wouldn't find
buyers for all the treasuries they would have to issue, so the fed would have
to print money to buy the bonds to make sure there wasn't a failed auction
(a.k.a Permanent Open Market Operations). This printing would work, for a
little while, but all the interest paid on the national debt would go higher
than the magic level of about 8% of GDP in which case it's becomes unable to
profitably reinvest itself and instead beings to flood into foreign exchange
and hard assets causing severe inflation. If the fed did not print then there
would be a failed debt auction and a debt default. That, or there would have
to be an unacceptable massive federal budget cut or a likely counterproductive
tax increase to cover the interest.

------
sprash
Sadly, even the chairmen of central banks ignore the most important
contribution to inflation: wages.

The reason why we have deflation in Japan and Europe despite almost zero rates
and even additional quantitative easing is because nominal median wages there
are actually falling.

It is very easy to make sure to have an inflation of 2%: Just raise the
minimum wage 2% each year. Thats it.

Example that inflation correlates strongly with wages for the EWU:

[http://www.flassbeck-economics.de/wp-
content/uploads/2013/03...](http://www.flassbeck-economics.de/wp-
content/uploads/2013/03/HF-4-3-2013.jpg)

~~~
roymurdock
This is wrong. 3.3m workers work for the minimum wage in the US. This
represents 2.6% of all wage and salary workers in the economy [0]. Raising the
minimum wage would simply make 2.6% of the working population better off at
the expense of their employers. It's a redistribution of wealth and it has
nothing to do with inflation.

You have your causation backwards. Employers being forced to pay a higher wage
to 2.6% of the working force does not cause the money supply to increase.
Central bank monetary policy causes the money supply to increase, creating
inflation. Wages increase in order to preserve purchasing power in an
inflationary economy. This is why the markets hang on the Fed's every word -
the Fed has the power to change interest rates and inflation which, in turn,
effects the labor market.

To address your point about deflation: QE was designed to support bank balance
sheets by removing risky and opaque assets and replacing them with liquidity.
Banks now have a ton of liquidity [1], but no investment-worthy projects. Thus
they choose to hold their reserves with central banks, choosing a negative
interest rate over the risk of lending in the economy. Wages are falling
because there is less money in the economy chasing an increasing amount of
goods. Therefore money is appreciating in value. Once banks resume lending out
the liquidity they have been injected with we will see wages rise.

[0] [http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-
mi...](http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-
wage/)

[1]
[http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1...](http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=15Y1)

~~~
sprash
> Raising the minimum wage would simply make 2.6% of the working population
> better off at the expense of their employers.

But never the less those 2.6% percent will be directly responsible for the
inflation since they barely get by now and if you increase their wages the
prices will adjust accordingly so that they barely get by in the future. Also
it has been shown that if you increase minimum wage all wages across the board
will increase, even the highest ones.

> Central bank monetary policy causes the money supply to increase, creating
> inflation.

There is no evidence for that. The money supply has been expanded vastly in
the last years but still there was almost no inflation. Why? because all the
money arrived in the financial market where it "inflated" the value of
financial products causing one bubble after the other.

There is a very easy way to make absolutely sure that the money arrives in the
real economy (which will be the driver of "investment-worthy" projects in the
future): raise wages.

------
don_draper
Another good question: Why are S&P500 stock dividends so low? The average
S&P500 stock dividend yield is like 2%. In theory, you buy stocks to receive
earnings. But if companies only give out a fraction of those earnings, you as
an investor are not really getting much. So how can companies get away with a
2% dividend yield?

~~~
arielweisberg
Dividends are a tax inefficient way to compensate share holders because
dividends are taxable. I hope dividends disappear.

Share buybacks increase net asset value without any tax impact.

There might be a downside, but I haven't heard it yet.

~~~
pdq
As the Alex cartoon posted by mauricemir points out, the majority of companies
doing stock buybacks are not doing it from profits. They are taking on
additional debt through bonds to buy their own stock.

This may look good in the short term, while bond rates are at historic lows,
but once they go back to normal levels, the companies will need to sell their
own stock to pay the bonds off.

If companies don't want to distribute dividends, the smartest thing for
companies to do is invest in additional R&D. This accelerates companies'
growth, whereas buybacks just artificially inflate the individual share value.

~~~
evanpw
1\. Even Apple borrows money for buybacks rather than spending their giant
cash hoard. The reason is taxes. Companies have a lot of cash generated
overseas, and if they brought that cash back into the US in order to buy back
stock, they would have to pay US corporate income tax on it, at a rate of
something like 35%. From that perspective, a 2% fee to the bankers is a steal.

2\. As far as I know, most corporate bonds don't have a floating interest
rate, so those companies have the option of paying off the bonds at maturity
and then just not borrowing more if interest rates have risen. They don't have
to continue the buybacks under that scenario, because investors don't expect
buybacks to be consistent from year to year -- another advantage over
dividends.

3\. Pouring money into R&D instead of returning money to shareholders only
makes sense if the company can get a better rate of return than shareholders
can get somewhere else. For a large, mature company that may well not be true.
In that case, they should stick to what they do well, send the profits back to
the shareholders, and let them invest it into some growing company which can
make better use of the money.

------
oldpond
"Equilibrium real interest rate"??? What a load of horseshit. Interest rates
are low because if they raise them the entire world goes broke. They dropped
them down in order to sell more and more debt. Now all the debt is sold. This
is the result of globalization; there's only so much "good" debt to buy. With
all individuals and governments in developed countries maxed out on their
debts, the banking system is basically stuck. Economists dredge up techno
baffle-gab like this to fool the public into thinking there's some complex
mystery to the financial system that only quants can figure out. It's not that
complicated. Declare debt amnesty, make all the banks suddenly smaller, and if
you really want to prevent this kind of thing from happening again make
currency speculation illegal. That's a good start.

------
irickt
By Ben S. Bernanke, former Fed Chairman

~~~
tmcgoo
Bingo

------
RockyMcNuts
Bernanke seems to discount the value of QE. If short-term rates are already at
zero, and the Fed can't impact longer-term interest rates, then QE would have
no effect.

But in fact, after the Fed pegged the overnight rate at 0, they could peg the
7-day rate at 0 just by committing to keep the overnight rate at 0 for 7 days,
and offering to lend 7-day money at 0. And they can then peg the 1-year rate
by offering to buy and sell 1-year T-bills at a given price. And so on up the
yield curve.

Of course, at some point inflation adjusts and the Fed can't peg the real rate
over the long term. But in the short term they can peg a lot of nominal rates
in a sense that is not as narrow as he lets on here.

[http://ftalphaville.ft.com/2015/03/30/2125256/did-
bernanke-f...](http://ftalphaville.ft.com/2015/03/30/2125256/did-bernanke-
forget-about-qe/)

------
jacquesm
Because the economy stopped growing, which means there is little demand for
money. If there is a large demand for capital then interest rates will rise.
It's ordinary supply and demand only applied to money rather than some good or
service.

~~~
brador
> there is little demand for money.

Wrong side of the equation. There is an oversupply of money, leading to low
interest rates.

~~~
jacquesm
I guess it depends on which side you are thinking from in arguments like
these. The interest rate a bank will give you depends on how much demand there
is for the money that _you_ are about to give that bank. If the bank has no
way to make a profit on the money they give you because there is little demand
then they will offer you a low interest percentage (or even none or a negative
one).

So yes, there is an oversupply, but that's the same as little demand on the
other side of the bank, plus or minus some arbitrary skew in time.

The bank simply tries to make money from being in the middle between supplier
of capital (you and your savings) and the consumers of capital (the demand
side, industry, mortgages and so on).

~~~
w0utert
The monetary system hasn't been about 'me and my savings', for at least 3
decades. Reasoning about banks, capital, supply/demand, return on investment,
in terms of whether consumers spend their savings or leave it sitting on a
bank account, will not make you any wiser about the state of the economy or
our monetary system.

Current rates are low because central banks everywhere are basically flooding
the world with free money, throwing good money after bad money by monetizing
poisonous debt, to prevent the financial system from imploding (which almost
happened in 2008). Or at least postpone it for as long as possible. Ben
Bernanke will be (almost) the last person on earth to say this out loud, which
makes the value of this fluff piece on a site like this pretty dubious.
There's a reason why his nickname is 'Helicopter Ben'.

~~~
jacquesm
That's definitely a good point, but even a madman with a printer counts as
'supply outweighing demand'. The principles don't really change. That's why
printing all this money is going to catch up with us sooner or later.

~~~
mtviewdave
>That's why printing all this money is going to catch up with us sooner or
later.

In 2009, here on HN, people were warning that the first round of QE would lead
to Weimar-style hyperinflation in fairly short order. Six years and two
additional rounds of QE later, interest rates and inflation in the U.S. are
still quite low.

People tend to forget that the economy has done quite well even under
inflation levels that we'd now consider high; during the Reagan boom,
inflation fluctuated between 3-5%. Even if all this QE led to 5% inflation for
a number of years, that's not really a serious problem (and certainly not
hyperinflation).

It starts to get painful when you get to 10%, 15%, 20%, but that's a fixable
problem. Indeed, it was fixed at the end of the 1970s. It was painful, but it
was fixed.

So, yes, it might catch up with us. But when and how badly matter a lot. If
the cost of all this QE is that average inflation in the 2020s is 5%, so what?
That's hardly a disaster. Or let's say inflation creeps up to about 12%, and
in 2025 the Fed takes strong action to get it under control, leading to a
sharp painful recession in 2025-26. Should we have a decade or two's worth of
stagnation to avoid this hypothetical? I personally don't think so.

------
Trumpet6
Early on the author states "the Fed is keeping them low. That’s true only in a
very narrow sense."

He then proceeds to stay in this narrow sense, while explaining the
theoretical framework driving the Fed's decision. While it is of course
interesting to better know their reasoning, this article does not amount to a
more nuanced response than "the Fed is keeping them low because the Fed thinks
its best".

Personally I think that's close enough to "the Fed is keeping them low" to not
really bother with the distinction.

------
cbaker
If you implement policies where all the benefits of growth go the people least
likely to spend them, you'll end up with a glut of savings. That is why
interest rates are so low.

------
upofadown
In the absence of some technological breakthrough that would allow new capital
investment to pay for itself, interest rates just can't be that high. We can
lend each other money to buy stuff (ex. mortgages) but there are strong limits
to the value of that sort of activity (as has recently been demonstrated).

------
vitriol83
> The Fed does, of course, set the benchmark nominal short-term interest
> rate....The Fed’s ability to affect real rates of return, especially longer-
> term real rates, is transitory and limited.

this would be a plausible argument if the us treasury weren't the biggest
buyer of long-term government debt.

~~~
o_nate
The Fed stopped buying Treasuries in November of last year and since that time
long-term rates (both real and nominal) have fallen.

------
mox1
It is a little scary to me that Ben is basically saying the "Wicksellian
interest rate" is the best way to steer our economy, so we strive to use
that....

To rely so heavily on theory to guide actual policy is at minimum reckless in
my opinion.

I hope there are / were other voices in the room with alternative opinions,
not just PhDs giving him hourly ideal Wicksellian rate updates....

~~~
rgross
Huh? It's reckless to guide economic policy by economic theory? How else do
you propose the Fed sets interest rates, a Ouija board?

~~~
mox1
I meant by a single economic theory / equation...

~~~
rgross
You needn't worry that Fed policy is too simplistic. Bernanke is a
distinguished economist (as is Yellen) and this blog post doesn't even scratch
the surface of the depth of his economic knowledge and background. That's not
to say that the Fed is perfect, of course, but the people in charge have
serious expertise; this isn't Ted Cruz heading up an environmental committee.

------
joshfraser
CPI is a horrible way to measure inflation. This is a pretty biased piece
coming from the former chairman of the Fed. It takes for granted that we need
centralized organizations to control the supply of money and that our only
option is never-ending inflation. There are many who believe we'd be better
off it we ended the Fed and the tax of inflation that devalues our money and
punishes savers.

~~~
guelo
Is there an example of a successful economy that ran without a central bank?

~~~
mkempe
The USA before 1913. See [1] for a detailed treatment of economies that
thrived without central banking.

[1] [http://www.amazon.com/dp/B004VMUL6G](http://www.amazon.com/dp/B004VMUL6G)

~~~
dap
What about an example of a major economy without a central bank that survived
a major depression (say, the size of the Great Depression)? Or
counterexamples? (I believe there are counter-examples -- nations with no
central bank that took a worse beating than other nations that had a central
bank during a major recession -- but I cannot remember them. Sorry.)

~~~
mkempe
Nobody can offer such an example, because the boom-bust (depression) cycle
itself is caused by the interventions of central bankers.

~~~
dap
That's a pretty bold claim for which to cite no sources.

~~~
mkempe
I gave you [1]. I'll generously give you also: The Theory of Money and Credit,
by Ludwig von Mises [2]

[2] [http://www.amazon.com/dp/1442175958](http://www.amazon.com/dp/1442175958)

------
jack9
> That’s true only in a very narrow sense.

I love his complete willingness to mislead. What an asshole.

If a bank can borrow from the Fed at a lower rate, they refinance their
existing debt almost immediately. This trickles down to smaller institutions
without the ability to borrow directly from the Fed. It's not true that the
Fed sets the interest rate in a narrow sense, it's true in a very strict and
immediate sense.

~~~
dap
He doesn't say that the Fed doesn't set the _nominal_ rate in the short term.
As I understood it, the post argues that it's unsustainable for the Fed to
attempt to set the nominal short-term rate to something different than the
medium-term real rate, over which it has no control. Did you skip the whole
part about what happens if the Fed sets the nominal short-term rate lower or
higher than the medium-term real rate?

