TEXT OF STORY
Kai Ryssdal: The yield on one-year Treasury bills was less than a half percent today. Even 10-year notes get you less than 4 percent. That helps explain why investors big and small have started chasing bigger returns with riskier bets. And it brings us to the rock-and-a-hard-place decision that faces the Federal Reserve next week as they meet to decide whether to bump up interest rates above zero.
Our senior business correspondent Bob Moon explains.
Bob Moon: Analysts expect most monetary policy makers to support holding the line on interest rates. But there’s growing pressure for the Fed to begin returning rates to more normal levels.
Thomas Hoenig heads the Kansas City Federal Reserve Bank. And leading up to next week’s meeting, he’s been warning that too much easy money is what got us in this mess.
Thomas Hoenig: People argue about this, but I’m of the view that having a extended period of low interest rates in the early part of the decade of the 2000s, not by itself, but it was a contributing factor to the crisis that we’re now working our way through. So we need to be mindful of that.
Hoenig spoke recently on the Fox Business Channel.
At Clearview Economics, Ken Mayland shares Hoenig’s concerns. He worries the economic recovery is being built on artificial gains, created by what he calls a flood of “funny money.”
Ken Mayland: It wants to find a home, in the form of higher prices for goods and services, and in the form of higher asset prices — stock prices or homes or value of bonds.
The easy money also troubles investment adviser Axel Merk. But he understands why the Fed sees a need to keep its interest rate crutch in place.
Axel Merk: The banking system in the U.S. needs to become even healthier, and the best way to do that is for the Federal Reserve to provide very cheap money to the banking system.
Merk says he expects the central bank to promise vigilance, but make no real change. And that worries the Kansas City Fed’s Thomas Hoenig, who argues the central bank can’t keep putting off a decision.
Hoenig: Doing nothing is a decision, and it has its own set of consequences.
I’m Bob Moon for Marketplace.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.