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Stephen Grenville

It’s the Fed’s fault we’re stuck in low interest rate world

The US central bank’s loose money habit was poorly conceived. But it has still forced everyone else into lock-step.

The US Federal Reserve strongly influences the general level of global interest rates and has set policy rates close to zero for the past decade. The Fed’s QE policies put pressure on other central banks to follow suite, as the Reserve Bank of Australia (RBA) signalled after Tuesday’s monthly board meeting.

Integrated world financial markets mean any country trying to set a significantly higher interest rate pays a penalty in terms of an overvalued exchange rate, stunting growth. We are all stuck with the low US interest rates, whether this has been appropriate for our economies or not.

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Stephen Grenville is a former deputy governor of the Reserve Bank of Australia and a non-resident fellow of the Lowy Institute.

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    Original URL: https://www.afr.com/policy/economy/it-s-the-fed-s-fault-we-re-stuck-in-low-interest-rate-world-20210705-p5871e