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 past 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.
The metaphor is relevant for the U.S. Federal Reserve. True, the Fed lifted off from its self-imposed quarter-percentage-point lower bound last December. But that's nothing more than igniting the rocket. It must pass through many phases before the launch can be called successful.
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