Low interest rates are hurting some groups and helping others. One example of this is the California Public Employees' Retirement System (CalPERS). They must earn an annual return of at least 7 percent, but cannot when the safe investments that pension funds usually rely on are paying less than 1 percent. In order to get a higher return, they must take on more risk. On the other hand, consumers have benefited from the low rates on auto loans and mortgages.
Due to Covid-19, the aging population, and slow growth, the Federal Reserve has decided to continue the low interest rates and large-scale buying of corporate and government securities. Since 2017, the economy has only grown by 2.5%. As long as interest rates remain low, this trend will persist. Additionally, low interest rates leave the Fed with few tools to fight recessions.
Do you think the economy will end up reaching a depression? If so, what type of monetary and fiscal policies be put in place to recover, given the already low interest rates?
Link to article: https://www.washingtonpost.com/business/2020/10/03/low-interest-rates/
I think the gains weve seen recently lead to believe that there will not be a lasting depression like the historic ones of the past. There really are only two choices for interest rates and thats hoping they will increase, or go negative. While increasing is unlikely, it is even more unlikely we see negative interest rates in the future.
ReplyDeleteI do think the economy is more likely to go into a depression opposed to recovering. The main reason I think this is because much of what the gov is doing with stimulus packages is very unsustainable and we are seeing the results of the economy with less of those benefits now
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