I believe they missed the window of opportunity years ago to raise interest rates, which not doubt would have resulted in substantially higher unemployment. That was politically unacceptable, but the laws of economics will impose that on us, unfortunately.
So, my answer to you is, I do not know what the FED should or would need to do. I think the laws of economics will force this disaster and all of its permutations to a showdown, the likes of which we have never seen in this country. We have economic cancer and we have known it for years , and we are taking aspirin for the cure.
Do you think these trends can be reversed back toward normalcy? I would like good news if you do.
The FED is out of solutions and the patient is still sick. Imagine a flu being suppressed by antidiarrheal and that’s what the FED has done via low interest rates. They cannot help themselves as they’re bankers and view the world through the eyes of a creditor.
The government bailed out banks creating even more moral hazard. Eventually, you have to let the virus take its course. We’ll survive, but there will be upheaval. The Establishment works always for the status quo, but if the river wants to leave its course it will.
ZIRP isn’t healthy and isn’t going to fix the problem. Lower debt will. A return to the 2007 regulatory system, better to go back to 1970 even, will fix it. A reduction in taxes or replacement of the current tax code with a consumption tax will do it, but no matter what the recovery of the patient will hurt.
But after an intense decline over a short period trust returns and people pick up bargains and the economy restarts. That’s the history of US deflations. The difference between previous deflationary periods is government intervention via the FED and massive Big Gov.