http://www.npr.org/2011/07/14/137838941/fed-official-its-time-for-rates-to-go-up
Fed Official: It's Time For Rates To Go Up
July 14, 2011
INSKEEP: But let's talk about what the idea is for near-zero interest rates, as explained to the public, that you have obviously a shortage of economic activity, of a lot of people out of work. You want to encourage businesses and others to borrow money and invest money or spend the money, you want to get money moving, and very low interest rates is seen as the most obvious way to do that. What's wrong with that reasoning right now?
Mr. HOENIG: Well, it asks(ph) a lot of monetary policy to do that. And it's asking the saver to subsidize the borrower so we can get through this, and I think the savers are willing to do that during the crisis, but now we've moved beyond that and that's an important reason. And when you leave things zero for long periods of time, you create new imbalances in the economy. Now, remember, this crisis that we just went through is because we had a period of very low interest rates, one percent, for a very long period of time. That created a credit bubble. It led to a housing bubble and a crisis. I'm not saying that will happen again, but I do know the conditions that are ripe for a bubble and zero create those conditions. And the longer they remain zero, the greater likelihood we are to create new imbalances that we will have to pay for later.
INSKEEP: Are you saying that maybe two or three years ago you would have been all right with exceedingly low interest rates in an emergency but the emergency's over as far as you're concerned?
Mr. HOENIG: Yes. The role of the central bank is to provide enormous liquidity during the immediate crisis. But when the crisis is under control, then you have to restore more normal interest rates, or you endanger your economy for the long-term. And I try and remind people that central banking is about the long-term.