equilibrium interest rates?

A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates "artificially low." Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by "the markets." The Fed's actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere. So where should that be? The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate.
 -- Ben Bernanke (Brookings Institution blog posting) March 30, 2015 




There is no affirmative case that control of interest rates spurs a magic elixir called more debt and higher leverage ratios which, in turn, generate improved economic performance and greater societal welfare and wealth. Accordingly, the Keynesian central banking remit, perforce, rests on the default case of prevention of business cycle instability and warding off the alleged suicidal tendency of capitalism toward depressionary swoons.... [But] the blinding empirical reality is that since the arrival of Keynesian central banking under Greenspan and his successors we have had the "Great Immoderation," not the nirvana of stable, endless growth and a recession-free world....

The Fed does not need to manage interest rates, and therefore does not need to embrace Bernanke’s spurious answer to the question of "what rate." Bernanke’s comments on the "equilibrium real interest rate" ... amount to pure gibberish -- academic jargon for unbounded, plenary power to manage the entire pricing machinery of the world's $300 trillion financial system. Indeed, lurking in the intellectual mush ["healthy operation of the economy, full employment of labor and capital resources"] ... is the true rationale for the greatest exercise in mission creep during the entire history of the modern state....

There is nothing in [the Fed's justification] that can be objectively measured or tangibly pegged....  [T]he real world of capitalism is far, far too complex and dynamic to be measured and assessed with the exactitude implied by Bernanke’s gobbledygook. In fact, what his purported necessity for choosing a rate "somewhere" actually involves is the age old problem of socialist calculation. It can’t be done -- and most especially not in the most fluid, complex and fastest moving markets known to man. That is, the global financial markets for debt, equity, loans, commodities and all their derivatives.

-- David Stockman (The Daily Reckoning) April 1, 2015