In today’s commentary at Bloomberg, Caroline Baum looks at the central bank’s latest excuse – the European sovereign debt crisis – to keep interest rates at their current freakishly low levels, an act that is likely sewing the seeds of future crises.

There is never a good time for central banks to raise interest rates. Some times are worse than others. A crisis qualifies as the worst of times, providing an opportunity, and excuse, to keep rates low.

What happens when crises start to run into one another? At some point, the Federal Reserve will have to depart the safety of its near-zero-percent interest-rate mooring, balancing the financial system’s current readings with the potential for gathering storms.

A brief history is in order.
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Them’s a lot of crises for the “Great Moderation,” an apt description of the low-inflation era that began in the mid- 1980s. The term is ill-suited to the series of rolling financial crises that seemed to have thrived during the reign of stable prices, at least as measured by conventional consumer price indexes.

The Fed responded to Europe’s troubles by reopening its swap lines to European banks. “Crisis” can now be added to the list of reasons to keep the federal funds rate at near zero: “substantial resource slack” (shorthand for high unemployment and low utilization rates); a tepid recovery (a forecast); stable inflation expectations (a hope); and a contraction in credit (a reality).

It’s hard to believe that, during the last decade, short-term interest rates in the U.S. were over five percent for less than two-and-a-half years. Probably more damaging was the fact that the Fed funds rate averaged just 2.8 percent during those ten years.

Of course, we’re off to an even worse start in this decade.