Home » OPINION » Columns » BILL CRAWFORD — Fed’s artificially low rates unfair to CD owners

BILL CRAWFORD — Fed’s artificially low rates unfair to CD owners



Are you a senior citizen or other conservative saver frustrated with the low rates banks have been paying on CDs?  Since the Federal Reserve controls these rates, now may be the time for you to weigh in with your senator and congressman.

The Fed is charged by law “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
So, what’s the status of these goals?
The Fed regularly sets targets for “maximum employment” by establishing a threshold or range for “natural unemployment.” In December 2012, as part of its rationale to keep rates near 0.0%, the Fed set 6.5 percent as the short-term unemployment rate threshold that would have to be reached before raising rates. Unemployment then was 7.9 percent. It is now 5.3 percent. At this level, the unemployment rate has moved to the bottom of the 5.2% percent to 6 percent range set by the Fed as its long-term goal. What all this means is that employment levels today meet the Fed’s historic definition of “maximum employment.”
Prices are stable as evidenced by low inflation. The latest CPI rate was .2 percent. The latest CPI rate excluding volatile food and energy was 1.8 percent.
Long-term interest rates are low. The 30-year U.S. Treasury bond is paying 3.15 percent.
It certainly appears the Fed has more than met its goals. How, then, can it justify holding its short-term interest rates between 0 percent  and .25 percent?  Since this is the rate that guides what banks pay for short-term CDs, senior citizens and conservative savers should demand answers.
Former Fed Chairman Ben Bernanke argues the Fed is not “throwing seniors under the bus” by keeping rates low. He uses a term called the “equilibrium real interest rate” to make his point.
“In a slowly growing or recessionary economy, the equilibrium real rate is likely to be low, since investment opportunities are limited and relatively unprofitable…. If the Fed wants to see full employment of capital and labor resources (which, of course, it does), then its task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate.”
What Bernanke fails to address is how his “equilibrium rate” has had such unequal impact on individual wealth. While average citizens with CDs have gotten little benefit from artificially low rates, Wall Street and hedge funds have profited exorbitantly. In effect, low rates made stock and commodity investments the only game in town and minimized the costs of leverage and speculation.
Stock and commodity market gyrations last week appeared to give the Fed pause over the paltry .25 percent rate increase it has discussed for months, making it clear the Fed gives precedence to those investors over CD investors.
Artificially low rates are unfair to CD owners. Surely it’s time they got a break.
» Bill Crawford is a syndicated columnist from Meridian (crawfolk@gmail.com)


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