- Bubble. The first scenario is a repeat of what has already happened in the U.S. When the Fed began by lowering interest for Y2K, the economy experienced a tech stock market bubble and then a housing market bubble. Based on this experience, the current low interest rates could be expected to lead to another bubble.
- Deflation. The second scenario is a repeat of what happened Japan. Despite the reduction of interest rates by the Bank of Japan, people didn't spend more nor did banks lend more. Thus, there was reduction in the velocity of money and a contraction in the money supply.
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This is not financial advice. Please consult a professional advisor.
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