Seniors and low rates: EconoMeter considers the pros and cons of Fed policy

Good and bad results from keeping rates near zero as economy struggles to recover

Federal Reserve Chairman Ben Bernanke tells Congress that interest rates are likely to remain low through 2014. (AP Photo/Carolyn Kaster) AP/Carolyn Kaster — AP


Panel's answer: Yes 4 No 4

Marney Cox, San Diego Association of Governments

Marney Cox


The cost of the Fed's monetary policies that have kept interest rates at or near record lows for more than four years is being paid for in part by households on fixed income. Seniors and others on fixed incomes are seeing their standard of living decline as low interest rates mean low interest earnings that don’t keep up with cost of living increases. For example, interest earnings on “safe” investments is one-tenth the level of late 2007 which has reduced the investment returns for households headed by seniors 34 percent, while the cost of living has continued to rise. The cost to seniors--fewer will enjoy a self-reliant, independent retirement.

Kelly Cunningham, National University Systems

Kelly Cunningham

Answer: NO

The Fed’s low interest rate policy not only wreaks havoc on yield-dependent retirees and other savers, but ignores the collateral damage of unsustainable debt, rampant inflation, misallocated resources and credit, and devalued U.S. currency. By holding rates so low for so long, the Fed ignores Consumer Price Index inflation, currently rising above 3 percent. As long as interest rates remain below rates of inflation, the U.S. economy will not equitably restructure toward lasting recovery, and savers will continue to suffer from weakening currency values. The eventual correction will be that much more severe given the immense effort that only postpones it.

Alan Gin, University of San Diego

Alan Gin

Answer: NO

There is some benefit to the low-interest rate policy, particularly in terms on boosting the housing market. But I think they have reached the point where the low level is counterproductive. The impact on those that depend on fixed-income investments is one area of negative impact. An increase in interest rates could boost the economy by giving those people more money to spend. Another problem is that low rates weaken the dollar; that helps our exporters and can create jobs, but it is also inflationary because imports are more expensive. Inflation also hurts seniors and those on fixed incomes.

James Hamilton, University of California San Diego

James Hamilton

Answer: YES

High unemployment and poor economic growth hurt everyone, even those who are retired. For example, I believe that the Fed’s policies have helped the stock market to do better than it otherwise would have. Remember also that the low interest rates are not all the Fed’s doing. What we’ve experienced is a flight to safety, and that is a major reason why the yields on Treasury securities are so low. For those living on investment income, it’s essential in this environment to take on a little risk in order to get a decent rate of return. You might consider rental property or conservative stocks paying a reasonable dividend.

Gary London, The London Group Realty Advisors

Gary London




