...Several factors have conspired to keep rates low. Inflation has run below the Fed's 2% target for more than three years. In normal times the Fed would push rates up as an expansion strengthens to slow growth and tame upward pressures on consumer prices. With no signs of inflation, officials haven't felt a need to follow that old game plan. Moreover, officials believe the economy, in the wake of a debilitating financial crisis and restrained by an aging population and slowing worker-productivity growth, can't bear rates as high as before. Its equilibrium rate--a hypothetical rate at which unemployment and inflation can be kept low and stable--has sunk below old norms, the thinking goes.
That means rates will remain relatively low even if all goes as planned. If a shock hits the economy and sends it back into recession, the Fed won't have much room to cut rates to cushion the blow.