What low interest rates are doing, however, is stimulating the economy and especially the demand for durable goods, like cars. That supports the recovery, boosts incomes and will ultimately lead us back to normalisation more quickly. If, on the other hand, we were to raise rates today, the opposite would happen.
It would simply push us back into recession and rates would stay lower for longer. The second concern about our policy is that it threatens financial stability. Low interest rates, it’s said, discourage balance sheet repair and create “zombie banks”. It’s also claimed that they encourage excessive risk-taking, leading to bubbles. And the longer they last, the worse the risks get.