Narayana Kocherlakota, Columnist

The Fed's Mission: A Rocket Launch From Jupiter

The economy needs a lot more momentum to break free of the powerful pull of zero rates.

September 23, 2016 at 11:00 AM UTC

Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

A real drag.
Photograph: JPL/NASA/Getty Images

Provide news feedback or report an error

Site feedback:

Take our Survey

This article is for subscribers only.

Over the past couple decades, the Bank of Japan has tried time and again to get interest rates up from zero, only to discover that the zero bound has a peculiarly strong gravitational pull. Although I hope the new measures it announced this week will help, its past experience holds an important lesson for central banks everywhere.

When interest rates are already near zero, everyone knows that the central bank can’t do a lot more to fight adverse shocks. The sense of vulnerability makes any fear of a downturn more likely to become self-fulfilling, as people and businesses cut back on spending. With this constant drag of downside risk, escaping the zero lower bound is like trying to leave Jupiter instead of Earth: The economic rocket has to go a lot faster.