Are Low Interest Rates Good?
Professor Davies says the best rate is the market rate—the rate we get when the Federal Reserve doesn’t meddle in financial markets.
Are low interest rates good for the economy? Many argue we need low rates to increase spending, since these rates make borrowing money cheap. Prof. Davies explains, however, that lower rates don’t mean more spending; they mean more spending now rather than in the future. The choice for every individual is to spend more now (borrow), or spend more in the future (save).
So what interest rate is best overall? Prof. Davies says the best rate is the market rate—the rate we get when the Federal Reserve doesn’t meddle in financial markets. Individuals know better than the government how and when to spend their money, and should be left alone to make their own decisions.
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