Debate Club

Should the Federal Reserve Keep Interest Rates Low?

Should the Federal Reserve Keep Interest Rates Low?

During her confirmation hearing before the Senate Banking Committee last month, Janet Yellen, President Barack Obama’s nominee to head the Federal Reserve, defended the low interest rate policy embraced by the central bank over the last few years. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” she said. Since the onset of the Great Recession, the Fed has not only kept interest rates near zero, but has initiated several rounds of so-called “quantitative easing,” which is the buying of assets in an attempt to stimulate the economy.

Yellen’s position echoes that of the man she’ll be replacing if confirmed. As U.S. News’ Danielle Kurtzleben reported, current Federal Reserve Chairman Ben Bernanke said at a meeting of the National Economists’ Club last month that, as long as inflation remains low, the Fed will be keeping its interest rate policy in place. “Even after unemployment drops below 6 1/2 percent, and so long as inflation remains well behaved, the [Federal Reserve] can be patient in seeking assurance that the labor market is sufficiently strong before considering any increase in its target for the federal funds rate," he said.

But some members of Congress are not pleased with the Fed’s insistence that rates remain low. Sen. David Vitter, R-La., said that he will vote against Yellen’s confirmation, as “she would continue the Fed’s current policies of continuing ‘Too Big to Fail’ and free money, quantitative easing, with no wind down in sight.” Sen. Marco Rubio, R-Fla., agrees, saying, “She has championed policies that have diminished people’s purchasing power by weakening the dollar, made long-term savings less attractive by diminishing returns on this important behavior, and put the U.S. economy at increased risk of higher inflation.”

So should the Federal Reserve keep interest rates low? Here is the Debate Club’s take:


The Arguments

#1
35 Pts
Federal Reserve Interest Rates Should Be Near Zero Forever

Yes – Federal Reserve Interest Rates Should Be Near Zero Forever

Warren Mosler Co-Founder of the Center for Full Employment And Price Stability

#2
16 Pts
Keep Interest Rates Low, and Find Other Ways to Burst Bubbles

Yes – Keep Interest Rates Low, and Find Other Ways to Burst Bubbles

Mark Weisbrot Co-Director of the Center for Economic and Policy Research,

#3
8 Pts
The Federal Reserve Should Raise Rates Immediately

No – The Federal Reserve Should Raise Rates Immediately

Mark Calabria Director of Financial Regulation Studies at the Cato Institute

#4
4 Pts
Monetary Policy Is the Only Game in Town

Yes – Monetary Policy Is the Only Game in Town

Martin Neil Baily Senior Fellow at the Brookings Institution

#5
0 Pts
Raising Interest Rates Now Would Be a Tragic Error

Yes – Raising Interest Rates Now Would Be a Tragic Error

Jeffrey Madrick Senior Fellow at the Roosevelt Institute


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