The Federal Reserve Board has resolved to hold interest rates artificially low—as opposed to letting them float with market demand—at least until the economy’s overall inflation rate reaches the Fed’s target rate of 2%.
There are questions concerning whether such a move reduces the Fed’s ability to deal with asset bubbles (whether the Fed should deal with bubbles at all is a separate question) and whether artificially suppressed rates encourage non-market driven levels of risk-taking.
There is, though, a reason why such suppression is simply wrong.
The Fed is (correctly) switching its policy to one of maintaining an inflation band centered on 2%, rather than holding out for a hard 2%.
Interest rates are intrinsically inflationary, though; if the Fed wants to put the economy into that band, it needs to set its benchmark rates at levels that have been historically consistent with a roughly 2% level.
Keeping rates artificially suppressed only removes that intrinsic upward pressure and makes it harder for the economy to reach its target range and stay in it.