As always, the views I will be expressing are my own and are not necessarily shared by other members of the Board of Governors or the Federal Open Market Committee. Let me start with a brief review of the extraordinary performance of the U.S. economy over the past five years.
These policymakers did not appear to appreciate that, even though nominal interest rates were very low, the ongoing deflation meant that the real cost of borrowing was very high because any loans would have to be repaid in dollars of much greater value (Meltzer, 2003). Thus monetary policy was not in fact easy at all, despite the very low level of nominal interest rates.