If you are like many Americans and an increasing number of economic and financial analysts, you have come, or are coming, to the conclusion that the Federal Open Market Committee’s (FOMC’s) zero interest rate policy has failed: Economic growth has been anemic relative to previous economic expansions. And the decline in the unemployment rate from its recession peak of 10 percent to 4.9 percent (which the FOMC attributes to its policy) was in large part accomplished by an unprecedented decline in the labor force participation rate, not by a massive increase in employment (payroll employment didn’t eclipse its January 2008 peak until April 2014). But you might not be quite sure why the zero interest rate policy has failed. This essay discusses not only why the policy failed, but why some economists, myself included, expected it to fail.
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