Why we should fear easy money

Cutting interest rates now could pave way for collapse in financial markets

To widespread applause in the markets and the news media, from conservatives and liberals alike, the US Federal Reserve appears poised to cut interest rates for the first time since the global financial crisis a decade ago.

Adjusted for inflation, the Fed's benchmark rate is now just half a per cent and the cost of borrowing has rarely been closer to free, but the clamour for more easy money keeps growing. Everyone wants the recovery to last and more easy money seems like the obvious way to achieve that goal. With trade wars threatening the global economy, Federal Reserve officials say rate cuts are needed to keep the slowdown from spilling into the United States, and to prevent doggedly low inflation from sliding into outright deflation.

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A version of this article appeared in the print edition of The Straits Times on July 31, 2019, with the headline 'Why we should fear easy money'. Print Edition | Subscribe