Whether it is the new normal or not, assuming that it is amounts to a hazard. Wages are not growing too much and the economic recovery remains fragile. In fact the low interest rates are in place to create an incentive for more robust economic growth, but could be fueling a bubble. The outcome of this this potential economic mess that is slowly cooking, depends a lot on the average consumer.Consumers might be falsely assuming that it is a good time to acquire a house, which in reality is tantamount to acquiring a mortgage. If the prices look like they are increasing, that will trigger the decision making mechanisms that could actually tip the price rally into bubble territory. This is part of the reason why interest rate hikes are needed. If the Fed keeps its current rates flat, a critical amount of consumers might interpret the market signals in the wrong way.
It is time to start normalizing monetary policy in order to control the rising dangers of the cheap money era. If central banks decided to prop up their national economies with cheap money during the years following the 2008-09 economic meltdown expecting to get a robust recovery, they must understand that 8 years of the same policy have yielded little more than a fragile recovery. That is why the Fed must change its approach, lest the rate sensitive markets such as housing, harming the economy. There must be a different solution to the lack of economic growth and subdued inflation other than exceptionally cheap money which the economy has been taking for 8 years straight to no avail.
