While lower interest rates can stimulate growth, they also come with potential downsides:
- Inflation Risk: Prolonged periods of low interest rates can lead to inflation, as increased spending and borrowing can drive up prices. - Asset Bubbles: Cheap borrowing costs can lead to asset bubbles in markets such as real estate or stocks, which can be risky if they burst. - Lower Savings Returns: Lower interest rates reduce the returns on savings accounts, which can hurt individuals relying on interest income.