Rates Are Low, So Where's the Boom?; Explanations Abound, but Structural Shifts in Economy May Be to Blame
Now that interest rates have dropped to their lowest point in nearly 25 years, whatever happened to that surge in the economy promised by the Federal Reserve, the Clinton administration and a legion of private economists?</br></br>Explanations run the gamut, from the patronizing ("These things take time") to finger-pointing ("The European recession is dragging us down") to Minkiw's observation that, after adjusting for inflation, long-term interest rates aren't really all that low (they are still a full percentage point above their historical average).</br></br>Confronted with the stubborn reality of economic growth rates stuck at 2 percent, administration officials now admit privately that they may have oversold the salutary effects of lower interest rates in lobbying for passage of their budget plan earlier this month.</br></br>And a number of economists are now saying that shifts in the underlying structure of the economy have made it less sensitive to interest rate changes.</br></br>"We're getting much less bang for the buck from lower interest rates than we used to, and the reasons are largely structural," observed Lawrence Chimerine, a senior adviser to the forecasters at DRI/McGraw-Hill Inc.