In the short-term, the weakness in the labor market reflects a shortfall of aggregate demand relative to the economy’s potential, which is an important part of the rationale for the currently accommodative stance of monetary policy. The real federal funds rate is now close to zero, and market participants expect it to remain near that level for a while.
Impact on the economy: low interest rates as a “necessary evil" Indeed, the low interest rates have cushioned the impact of the crisis and are propping up the gradual economic recovery sprouting in Germany and Europe. Admittedly, the European Central Bank does not gear its monetary policy towards these factors – its target is inflation.