Why Raising Interest Rates Could Correct Market Distortions

The U.S. operates with a government-issued currency and a central bank, institutions that are unlikely to disappear soon. While their performance varies, the goal should be to ensure they function as effectively as possible. This means maintaining supply-demand equilibrium, avoiding boom-bust cycles, and reducing uncertainty that hampers planning for individuals and businesses.

The Federal Reserve, which has controlled interest rates since its establishment in 1913, must actively manage monetary policy. Keeping rates unchanged is just as deliberate as adjusting them. Currently, the Fed sets a ceiling and floor for interest rates, lending to banks at 4 percent and paying 3.9 percent on dormant reserves.

Advocates for raising interest rates argue that the Fed has kept rates artificially low for too long, leading to excessive money supply growth. This rate suppression is seen as a form of central planning, distorting market forces. An upward correction in rates would reduce these distortions, even if it means deviating from what free markets might dictate.