The writer is a former chair of the US Federal Deposit Insurance Corporation and is a senior adviser to the Center for Financial Stability They say the good things in life are free. That may be true of walks on the beach or picnics in the park. It is not true of money. 

The US Federal Reserve kept money free for nearly 14 years in the name of stimulating the economy. This period of “zero-interest rate policy”, or “Zirp”, was characterised by tepid growth, increased market concentrations, low productivity and yawning wealth inequality. Now that the Fed has shifted to a “higher for longer” stance to combat inflation, our economy will have to make painful adjustments to the rising cost of money. But we need to hold our course. Ultimately, higher rates will lead to a fairer, more productive and resilient economy. 

The theory of Zirp is that it boosts consumption and productive capital investments by making it cheaper for businesses and consumers to borrow. But the theory has not proved itself in practice. Economists have struggled to find a correlation between low interest rates and economic growth. Some studies suggest that higher rates are associated with higher economic growth. This is consistent with the US experience.