Antiquated Fed Raises Interest Rates for First Time in Nearly a Decade

Photo credit: Kurtis Garbutt via Flickr (CC BY 2.0)
Photo credit: Kurtis Garbutt via Flickr (CC BY 2.0)

Today, after seven years, the Federal Reserve finally took steps toward ending its failed zero-interest rate policy, announcing in a unanimous decision that it would raise the federal funds rate a quarter of a percent, or 25 basis points, in its first interest rate hike in nearly a decade.

It is absolutely befuddling that the Fed took so long to increase rates a measly 25 basis points. The last time interest rates were above the 0.25 percent threshold, Miley Cyrus was still known to America for her wholesome children’s show Hannah Montana.

The Federal Reserve still needs massive reform. Its current model is antiquated, arbitrarily basing decisions off of past economic indicators, not present or future outlooks. For more than 40 years, they’ve been playing a high stakes guessing game with interest rates. When the Fed guesses wrong, whether too high or too low, it distorts our economy, investments, and opportunities.

We need the Fed to get out of the way and let the free market determine interest rates. An important first step toward reforming the Fed is to pass the Brady-Cornyn Monetary Commission, which would analyze and recommend the best monetary policy for a 21st century economy.

Terry Schilling is the executive director of American Principles in Action.