- Says savers would've been worse off without easy Fed policy
- Fed will go gradually after first rate rise, Yellen says
Federal Reserve Chair Janet Yellen, responding to a letter calling for higher interest rates on behalf of savers, said Americans would have been worse off had the central bank not kept rates near zero since 2008, and repeated that she expects to tighten policy “gradually” after liftoff.
Warning that “an overly aggressive increase in rates would at most benefit savers only temporarily,” she argued in the letter released Monday in Washington that the Fed’s seven-year era of zero rates had sheltered American savers from dramatic declines 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 children and grandchildren),” if the Fed had not acted with such force, she wrote.
Fed officials are widely expected to increase the federal funds rate by a quarter percentage point when the Federal Open Market Committee meets in Washington Dec. 15-16, marking the bank’s first hike in almost 10 years.
Repeating that she and most of her colleagues expect the pace of policy tightening to be gradual after liftoff, Yellen said “overly aggressive” rate hikes could also undercut the economic expansion and force the Fed to reverse course back to zero, drawing a parallel with Japan, where rates have been stuck near zero for the past 25 years.
Yellen’s letter responded to a plea from a “group of humble savers” that included consumer advocate Ralph Nader frustrated by low returns gained from traditional bank deposits 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,” it read. “It doesn’t seem fair to put the burden of your Federal Reserve’s monetary policies on the backs of those Americans who are the least positioned to demand fair play.”
Yellen told the group that lower borrowing costs helped make large purchases more affordable for American consumers, supporting the economy and creating “millions of jobs.”