Why are interest rates generally so low at the moment?

Tuesday, 7 April, 2015

The message is pretty clear, even if you only occasionally take in the finance news, interest rates, in the West at least, are generally pretty low right now. In the US and Europe for instance, central banks rates are pretty close to zero, if not lower.

Interest rates in Australia are trending down as well, fueling concerns of a property bubble in some areas, so cheap has housing finance become in recent years. So why are they so low in the first place? And I guess if Ben Bernanke, former chairman of the US Federal Reserve, cannot answer the question, who can?

In recent years, several major central banks have prematurely raised interest rates, only to be forced by a worsening economy to backpedal and retract the increases. Ultimately, the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low (closer to the low equilibrium rate), so that the economy could recover and more quickly reach the point of producing healthier investment returns.

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