Market Interest Rates Need to Tell the Truth, or Why Federal Reserve Policy Tells Lies

Richard Ebeling emails:

I have a new piece up on Northwood's "In Defense of Capitalism" blog on, "Market Interest Rates Need to Tell the Truth, or Why Federal Reserve Policy Tells Lies."

Once again, the Federal Reserve Open Market Committee has announced its intention to continuing artificially keeping interest rates "exceptionally low" for a "extended period." Missed in virtually all the commentaries is the key question: Should a central bank try to manipulate interest rates? Lost in all the debate over monetary policy is the fact that interest rates are market prices that are supposed to tell the truth: the truth about actual supply and demand conditions in financial markets.

By preventing interest rates from telling the truth central bank policy inevitably sends out wrong signals about the real relationships between available savings and desired investment. The results are malinvestments, unsustainable bubbles and general economic harm.

Misguided monetary policy got us into the current business cycle, and the Federal Reserve is continuing the same mismanagement in the post-bubble era. Unfortunately, as long as we have central banks we will suffer from the ill affects of monetary central planning -- distortions, imbalances, and inescapable "corrections" known as recessions.

Read the entire article here.