Yellen de­fends near-zero rates to con­sumer ad­vo­cate Nader

Kuwait Times - - BUSINESS -

WASH­ING­TON: Amer­i­cans have ben­e­fited from the Fed­eral Re­serve’s near-zero in­ter­est rate pol­icy, de­spite its neg­a­tive im­pact on savers, Chair Janet Yellen said in a let­ter Mon­day to con­sumer ad­vo­cate Ralph Nader. In re­sponse to a let­ter from Nader de­cry­ing the plight of savers who are suf­fer­ing from years of ex­cep­tion­ally low in­ter­est rates, Yellen noted that Amer­i­cans would have been worse off if the Fed had not taken dras­tic ac­tion to counter the se­vere fi­nan­cial cri­sis in 2007 and 2008 and the en­su­ing re­ces­sion.

“Amer­i­cans gen­er­ally have ben­e­fited, most par­tic­u­larly lower- and mid­dle-in­come peo­ple af­fected dis­pro­por­tion­ately dur­ing the down­turn,”Yellen wrote.

By peg­ging the bench­mark fed­eral funds rate be­tween zero and 0.25 per­cent point in De­cem­ber 2008, the Fed low­ered bor­row­ing costs for mil­lions of Amer­i­can fam­i­lies and busi­nesses, in turn sup­port­ing the hous­ing mar­ket and job growth, she ar­gued. “We all hope and ex­pect that the econ­omy will con­tinue to ex­pand, that the jobs mar­ket will con­tinue to make progress, and that in­fla­tion will move to­ward our two per­cent price sta­bil­ity ob­jec­tive,”Yellen wrote.

“If that is the case, my col­leagues and I have in­di­cated it will be ap­pro­pri­ate to be­gin to nor­mal­ize in­ter­est rates.” The mar­kets ex­pect the cen­tral bank to an­nounce the rate liftoff on De­cem­ber 16, cap­ping a two-day meet­ing of the pol­icy-set­ting Fed­eral Open Mar­ket Com­mit­tee.

Jus­ti­fy­ing keep­ing rates near zero for al­most seven years, Yellen said: “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.” In an open let­ter to Yellen posted on­line Oc­to­ber 30 by The Huff­in­g­ton Post, Nader said he was writ­ing as one of mil­lions of “frus­trated” Amer­i­cans who are get­ting near zero per­cent on their tra­di­tional bank sav­ings and money mar­ket ac­counts.

“We want to know why the Fed­eral Re­serve, funded and heav­ily run by the banks, is keep­ing in­ter­est rates so low that we re­ceive vir­tu­ally no in­come for our hard-earned sav­ings while the Fed lets the big banks bor­row money for vir­tu­ally no in­ter­est,” Nader wrote. In her re­sponse, Yellen ac­knowl­edged the frus­tra­tion of savers caused by their very low re­turns, which have “caused hard­ship for some of them, par­tic­u­larly se­niors on fixed in­comes.”— AFP

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.