COMMENT: Has the Fed Waited Too Long to Raise Interest Rates?

Almost everyone agrees that the Federal Reserve’s extraordinary action to cut interest rates to near zero in the depths of the Great Recession helped save the country from a deeper downturn – or even another depression.

But as the Fed prepares to make a historical rate increase for the first time in nearly a decade, some critics question whether the central bank administered its monetary medicine too late.

They say the Fed’s easy-money policies, including huge bond purchases and a seven-year period of record low rates, had diminishing effect over time and subjected the nation to side effects that could lead to serious problems in the future.

On Wednesday, Fed officials are widely expected to announce a modest 0.25 percentage point boost in interest rates, closing an unprecedented chapter in U.S. economic policy and leaving behind a legacy that historians will debate for years to come.

Critics say the central bank’s actions made Wall Street and the super-rich even fatter, fueling a stock market surge while leaving many ordinary workers no better off and widening the nation’s wealth inequality.

Stimulative policies begun under former Fed Chairman Ben Bernanke and continued by his successor, Janet Yellen, inadvertently channeled huge amounts of money into economic competitors abroad, including billions of dollars that bolstered China’s industries and exports.

And by flooding the global economy with cheap cash, the Fed’s prescription produced a frothy financial climate that encouraged speculative investment and excessive risk-taking.

As savers, pension funds and insurance companies sought relief from the pain of low interest rates, the issue now is “whether they ended up taking up risks that were greater than they realized,” said Donald Kohn, the Fed’s former vice chairman under Bernanke. “I think it’s too soon to know.”

To defenders of the Bernanke-Yellen Fed, including Kohn, such complaints amount to Monday morning quarterbacking from critics who did not face the pressure to act quickly to avert disaster.

Moreover, they say many of the problems afflicting the present-day economy were developing all along and beyond the power of any Fed chair to cure. Income inequality and wage stagnation for the middle class, for example, have been building for decades.

And the Fed has had to stand largely alone, as most other developed nations struggled with their own financial problems and Congress and the White House became paralyzed by partisan politics.

The Fed has a dual mandate to maximize employment and stabilize inflation, which it tries to achieve primarily by pushing up or down the federal funds rate, the benchmark short-term financing cost for banks that influences a wide range of borrowing rates for households and businesses.