NEW YORK (TheStreet) -- Low interest rates in the U.S. and around the world are here to stay -- at least for a while, according to former Federal Reserve Chairman Ben Bernanke, now a part-time economics blogger.
Why? Because that's what the economy needs right now, Bernanke writes in his first blog post for The Brookings Institution. Bernanke plans to write periodically for the Washington, D.C.-based think tank on topics including economic and financial issues.
In his post, Bernanke explains that the central bank isn't keeping interest rates artificially low but that it's responding to how the economy is growing, using a benchmark known as the "equilibrium real interest rate."
According to Bernanke, this rate is the "real interest rate consistent with full employment of labor and capital resources, perhaps after some period of adjustment," meaning roughly how much return investors can expect on their money.
In a rapidly growing economy, the equilibrium interest rate is expected to be high, "reflecting the high prospective return on capital investments," he writes. Conversely, in a slow growing or recessionary economy, the equilibrium rate is likely to be low "since investment opportunities are limited and relatively unprofitable."
What should the Fed do, then, when the economy is growing slowly?
"If the Fed wants to see full employment of capital and labor resources (which, of course, it does), then its task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate, or -- more realistically -- its best estimate of the equilibrium rate, which is not directly observable," he writes.
Regardless of what Bernanke thinks the Fed should do, observers expect short-term interest rates to rise at some point in the near future, though probably not earlier than June.
Bernanke argues that low interest rates aren't an aberration but the result of a long-term trend that began in the early 1980s, when interest rates peaked at around 15%. Driving the trend is a consistently low rate of inflation, not the Fed, according to Bernanke.
The "state of the economy, not the Fed, is the ultimate determinant of the sustainable level of real returns. This helps explain why real interest rates are low throughout the industrialized world, not just in the United States," he wrote, noting that interest rates in countries like England and Switzerland are even lower than they are here.