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The Fed Parties On As Savers Suffer

The debate over the Federal Reserve’s punishing interest rate policy moves to the central bank’s annual party, I mean symposium, in Jackson Hole, Wyo., today.

Raghuram Rajan will carry the banner for all of us who have endured two years of lower and lower returns on our savings.

The University of Chicago professor, and former chief economist for the International Monetary Fund, will tell the Fed that it simply has to raise the rate banks charge each other for overnight loans by at least 2 percentage points.

The Fed has the overnight rate currently set at 0% to 0.25%, which means banks can get money for virtually nothing, and that’s why they can pay us virtually nothing for our savings.

Note that Rajan isn’t urging the Fed to go hog wild and allow interest rates to rise to market levels.

That would be irresponsible given the perilous state of the economy.

He’s simply saying what we’ve been saying for some time now, which is that the Fed can’t distort the money markets in such an extreme way for an indefinite period of time without some serious, unintended consequences.

In our case, we’ve decried the Fed’s total lack of concern about how its policies are hurting savers, especially those living on fixed incomes who need a reasonable return on their CDs and savings accounts to keep a roof over their heads and put food on the table.

As you might suspect, Rajan takes a much broader view of the potential problems. The guest column he published in yesterday’s New York Times summarizes his concerns.

He won’t find a sympathetic audience among the Fed’s directors. Kansas City Fed President Thomas Hoenig is the only member of the bank’s rate setting committee who has voted to raise rates this year.

We have to wonder if anyone in Jackson Hole understands the anger some of us feel when we see the bailed-out bankers rolling in profits and bonuses while we get nothing for our hard-earned savings.

Most of the financial industry elite will spend the next couple of days telling each other why the struggling economic recovery just couldn’t endure even a small increase in interest rates, and I’ll be heading down to my bank to buy a 2-year CD for a pitiful 1.00% APY.

I do not kid myself. They do not care.

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  1. Earl said:
    on August 28th at 01:23 am

    Thanks, Crankysaver for speaking out about our lousy CD earnings. They say inflation is zero but we all know better and we are all getting royally reamed.