View Full Version : U.S. Issues Low Rates Could Hold Back Economy

08-29-2011, 09:12 PM
Low rates aren’t helping to reenergize the slowing economy. According to the Associated Press, ultra-low interest rates usually work to revive the housing market and push customers to spend a little more freely. This time, however, they have hurt retirees and others who depend on interest income.

That type of income fell 27 percent from 2008 to last year, the AP said. This has economists worrying that the low rates may actually be hurting the economy and defeating the purpose of Federal Reserve policies. As the news agency explains it, when people earn less, they spend less.

That’s a big blow for the United States economy, where spending accounts for about 70 percent of movement.

These new concerns have emerged after the Federal Reserve pushed down short-term interest rates to near zero in 2008. The policy was part of an effort to stave off the worst recession since the 1930s. Since implementing these rates, the Fed hasn’t moved them.

“[They’re] turning the faucet and nothing’s coming out,” said William Ford, former president of the Federal Reserve Bank of Atlanta. “I don’t see any pluses on the plus side of the ledger…But they’re ignoring the strong negative effect that they’re having. They’re killing savers. Retirees are earning nothing on their life savings.”

According to the federal Bureau of Economic Analysis, Americans’ total interest income dropped from $1.38 trillion in 2008 to $1.01 trillion in 2010. They probably won’t change any time soon, as the Fed plans to keep the rates near zero through mid-2013 unless the economy improves.