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Why are the FEDs Interest Rates so Low?

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Old 03-11-2011, 09:24
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Join Date: Oct 2011
Posts: 6
Default Why are the FEDs Interest Rates so Low?

I can think of a few reasons why the FED keeps interest between .25% and 0%.
  1. To weakening the USD to encourage US job growth
  2. Make it easier for companies to borrow money
  3. They want to lower the cost of mortgages and help the Real Estate market
  4. They want to profit from a lack of faith in the credit rating agencies
  5. To retire old debt and issue new debt, profiting on the spread
  6. They are changing their proirites to match those of the average investor

If their goal is to weaken the USD, why have they only reduced one rate? Other borrowing rates are still above 4%. If the goal is to help jobs, wouldn't lowering the cost for setting up a business (especially a factory of some sort) help? Why are interest rates high for people setting up businesses? Companies still have trouble borrowing money. I thought the FED was supposed to be a lender of last resort. We all know that US banks are notoriously not lending out money. Even the money they were given to resume lending money went back to the government to buyback shares and otherwise get the US out of their pocketbook. Alas, liquid money and job growth seem not be the FEDs top priorities.

The FED seems to be profiting from the lack of faith in credit agencies. Despite the US governments financial issues and desire for the political parties to threaten a US default regularly, the FED still sells all the bonds it wants to, at a lower interest rate than either inflation, or existing bonds that it can now recall. As there is no trust in any of the rating agencies. Why shouldn't the FED profit from changing investor priorities? Every other effort to stimulate the economy has not worked out so well. The effect QE 1 and 2 had on the economy ended when they did. If you cant better the economy, the next best thing is to put yourself in a better position to do so later.
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Old 13-12-2011, 10:10
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Join Date: Dec 2011
Posts: 15
Default Re: Why are the FEDs Interest Rates so Low?

The FED has no choice but to keep the interest level around zero because it is continuously buying the US bonds. Besides, this is its only key to keep the financial system alive. If Bernanke raises the interest rate, small business might shut down and America will slide to another rough resection..
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