Steve Forbes, editor-in-chief of Forbes Media, warns that the United States will be mired in a dismal economy after the central bank decided to hold current interest rates.
“The Federal Reserve’s announcement that it will continue to suppress interest rates is going to harm the economy,” he wrote on Forbes.com.
“We won’t be breaking out of the rut we’re in, which is bad news for us and the rest of the world,” he wrote.
The Federal Reserve decided last week to hold interest rates near zero. That means borrowing costs will remain low for a while yet, a prospect that has in the past typically boosted stocks. But some investors, expecting the Fed would be confident enough to nudge rates up by at least a quarter of a point, interpreted the stance as a sign that the global economy is dangerously weak.
“Under the Fed’s zero-interest-rate policy (ZIRP) banks couldn’t know the real price they should charge for loans, so they’ve made fewer of them to small-business borrowers and startups than they traditionally would have. Consumers have also suffered. Where credit has been extended, conditions have been tightened considerably,” he wrote.
“What’s also made this barrier to small- and new-business lending harder to overcome has been the fierce regulatory regime, primarily the Dodd-Frank bill, that was imposed after the panic. All this has made lending more expensive and scarcer to the very entities that have normally been the economy’s prime job creators,” he wrote.
The Fed has kept its benchmark rate close to zero for almost seven years. In that time, U.S. stocks have nearly tripled from their financial crisis low. The Fed meets again next month and in December.
“The Federal Reserve thinks its zero-interest-rate policy stimulates the economy, but it’s actually doing the opposite. It’s the equivalent of bleeding an anemic patient.”
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