The market, not the Fed lowered rates in 2008

So, economists, I am tired of having to correct you folks all the time, especially Krugman.  Look, the blue line is the Fed target, the red is the one year treasury.  Note the blue line is always to the right or above the red in most of 2007 and 2008.  The Fed was chasing the market down hill.  Economists, look at the damn data before you quote from the recipe book.



Lets list  some fact for the economists:

The Fed did not lower any rates since late 2007, the market did. The market currently has the overnight rate for non member banks at .1, about the same as one year treasuries.  The Fed holds the IOER at .25, that is higher than market rates.  QE mostly raised long term rates and likely had little effect on inflation. The Fed cannot raise lending rates above market lending rates, except indirectly or by raising reserve requirements way up.

Why does the economy accept interest rates below the dollar deflator rate?

Because the fiat has utility equal to .8%, actually. That number seems to be the acceptable level of fuzziness the economy accepts in accounting. The cost of being more accurate is too high, it involves dealing with DC.