Analysts and investors have been searching for clues as to whether Federal Reserve policymakers will begin raising interest rates when they meet next week. However, globalization makes that decision a lot less important than in years past.
Keeping interest rates low for prolonged periods of time distorts the economy. For example, lower earnings on certificates of deposit forces many seniors to take part-time jobs to supplement pensions and Social Security. This displaces younger job seekers and contributes to less labor-force participation among prime working-age adults.
Holding short-term interest rates near zero makes conventional loans less profitable and encourages large banks to focus more on trading in securities and private equity deals; those flip assets and repay loans quickly but contribute little to growth and jobs creation.
Prolonged low mortgage rates push up land values in hot markets like Manhattan to levels not easily sustained when interest rates are normalized. And low rates encourage corporations to take on more debt—often to boost stock prices artificially by buying back shares.
