Low rates good for banks in long run

A Wall Street Journal article on Fed Chairman Bernanke's speech at the FDIC's Community Banking conference quoted him as saying in response to community bankers' complaints that zero interest rate policies are hurting their profitability

"In the longer term, the overall effect on bank profitability of an appropriately accommodative monetary policy is almost certainly positive."

According to Mr. Bernanke the exceptionally low level of interest rates is going to spur a pickup in loan demand that will improve profitability.

If Japan's experience with zero interest rate policies is any indication, the longer term is at least two decades away.

However, Mr. Bernanke did give himself an out.  He noted that appropriately accommodative monetary policy is almost certainly positive.

Walter Bagehot and a host of other financial market participants, including Bill Gross and Charles Schwab, might suggest that monetary policy consistent with interest rates at 2% is almost certainly positive.  They might go on to suggest that, except for very brief periods measured in months, any monetary policy that sets interest rates below 2% is almost certainly negative.