Hidden cost of low interest rates

Opportunity cost is the core of economic thinking. The tricky part of economics is trying to see all the possible alternatives and assess the costs and benefits of these alternatives. The current interest rate policy being pursued by the Fed is a good example of this. The extremely low rates of 0-.25% for Fed Funds is good for banks and those managing large debts that have adjustable rates, but is really bad for savers and people living on fixed incomes. The fact that this policy has been in place for several years and could continue for a long time is affecting people's investment decisions by encouraging people to invest in riskier assets. Gretchen Morgenson has a good column in today's New York Times about the effects of low interest rates and the hidden costs. While she does not make a good argument for raising rates, she does point out the costs that many people are currently ignoring.