The cost of low interest rates - thinking out of the box

Clearly, someone is paying a price for ultra-low interest rates: the patient and uncomplaining saver. Interestingly, if traditional spenders such as firms and young households are unwilling or unable to take advantage of low interest rates, low rates could even hurt overall spending, because savers like retirees receive lower financial incomes and curtail spending.

Raghuram Rajan, University of Chicago professor

Would we be better off if there was an increase in rates while the Fed buys securities? This would flatten the yield curve but savers would be able to make some money on their deposits and there would be less speculative flows looking to invest in risky assets in search of yield. If this is a balance sheet recession it is not the level of rates which is holding back behavior but the loses on assets. Lower rates are not going to make a dent in the balance sheet of consumers if credit is not extended to borrowers. Borrowers will not take on new investments if rates are 50 bps lower if the project does not make sense. The choice of just keeping rates low may not be a viable option.