Lesson for Fed: Higher Interest Rates Haven't Been Sticking

That points to a risk for the U.S. Federal Reserve as officials contemplate raising short-term interest rates for the first time in nearly a decade.. But if recent history outside the U.S. is any guide, the economy might not cooperate and rates could remain exceptionally low for a long time.

In 1936, seven years after the 1929 stock-market crash, the Fed moved to raise banks' reserve requirements. The government also sought to prevent an inflow of gold from pushing up money supply and the government implemented tax increases and cut federal spending to improve fiscal balances. The combination caused banks to curb lending, which hit employment and growth, and the U.S. fell into its third-worst recession of the 20th century.

The Fed reverted to an easy-money policy that persisted well past the end of World War II. Rates on three-month Treasury notes didn't rise above 1% until 1948 and didn't get above 2% until 1952, nearly a quarter century after the 1929 crash.

Fed officials now say they plan to move gradually. But their expectations for rates could still be too high. Officials in June estimated the central bank would raise the short-term federal-funds rate from near zero now to 1.625% by the end of 2016 and to 2.875% by the end of 2017.