The cost of borrowing money is at a record low. Is this a good thing?
Many argue that we need low interest rates to increase spending and decrease saving, but Prof. Davies explains that artificially low interest rates cause people to spend now, rather than later in the future. It alters spending habits, but it doesn’t create “more spending.”
So, what interest rate is best for the economy? Prof. Davies says the market rate— the rate we get when the Federal Reserve doesn’t meddle in financial markets.