First, as John Maynard Keynes discussed in the concluding chapters of The General Theory of Employment, Interest and Money, a low equilibrium interest rate increases the risks of falling into a liquidity trap, a situation where the nominal interest rate is stuck, by an effective lower bound, above the rate necessary to bring the economy back to potential.4 Relatedly, but more broadly, low equilibrium interest rates are a key pillar of the secular stagnation hypothesis, which Larry Summers has carried forward during the past few years.5 Second, a low natural rate could potentially hurt financial stability if it leads investors to reach for yield or hurts financial firms’ profitability.
And, third—and perhaps most troubling—a low equilibrium rate sends a powerful signal that the growth potential of the economy 6 4 / 11  BIS central bankers' speeches  may be limited.6 Slow trend growth One factor contributing to low equilibrium interest rates in the United States has been a slowdown in the pace of potential, or trend, growth.