Last month, consumer advocate Ralph Nader wrote to Federal Reserve Chair Janet Yellen on behalf of “humble savers in traditional bank savings and money market accounts,” criticizing the Fed’s decision to hold interest rates near zero for seven years. On Monday, Yellen responded.
“It may help to review the basic facts,” she wrote. While savers would have enjoyed some extra pocket change if the Fed had raised interest rates, Yellen asserts that they would have suffered a net loss due to the broader economy’s struggle. She says that low interest rates helped to bring the economy back from the brink in the aftermath of the Great Recession:
Would savers have been better off if the Federal Reserve had not acted as forcefully as it did and had maintained a higher level of short-term interest rates, including rates paid to savers? I don’t believe so. Unemployment would have risen to even higher levels, home prices would have collapsed further, even more businesses and individuals would have faced bankruptcy and foreclosure, and the stock market would not have recovered. True, savers could have seen higher returns on their federally-insured deposits, but these return would hardly have offset the more dramatic declines they would have experienced in the value of their homes and retirement accounts. Many of these savers undoubtedly would have lost their jobs or pensions (or faced increased burdens from supporting unemployed grandchildren).
Nader had written in his open letter that the low interest rates “exploited” people who rely on interest income to pay their bills, like the elderly. He wrote that he hoped Yellen would sit down and make Federal Reserve decisions with her husband, which drew ire from many readers:
Chairwoman Yellen, I think you should sit down with your Nobel Prize winning husband, economist George Akerlof, who is known to be consumer-sensitive. Together, figure out what to do for tens of millions of Americans who, with more interest income, could stimulate the economy by spending toward the necessities of life.
The Federal Reserve is widely expected to begin incrementally increasing rates this December.