Fed chief Janet Yellen defends near-zero interest rates to consumer advocate Ralph Nader

Federal Reserve Chair Janet Yellen delivering remarks at the Federal Reserve Conference on Monetary Policy Implementation and Transmission in the Post-Crisis Period in Washington on Nov 12, 2015.
Federal Reserve Chair Janet Yellen delivering remarks at the Federal Reserve Conference on Monetary Policy Implementation and Transmission in the Post-Crisis Period in Washington on Nov 12, 2015. PHOTO: REUTERS

WASHINGTON (AFP) - Americans have benefited from the Federal Reserve's near-zero interest rate policy, despite its negative impact on savers, its chair Janet Yellen said in a letter on Monday (Nov 23) to consumer advocate Ralph Nader.

In response to a letter from Nader decrying the plight of savers who are suffering from years of exceptionally low interest rates, Ms Yellen noted that Americans would have been worse off if the Fed had not taken drastic action to counter the severe financial crisis in 2007 and 2008 and the ensuing recession.

"Americans generally have benefited, most particularly lower- and middle-income people affected disproportionately during the downturn," Ms Yellen wrote.

By pegging the benchmark federal funds rate between zero and 0.25 per cent point in December 2008, the Fed lowered borrowing costs for millions of American families and businesses, in turn supporting the housing market and job growth, she argued.

"We all hope and expect that the economy will continue to expand, that the jobs market will continue to make progress, and that inflation will move toward our two percent price stability objective," Ms Yellen wrote.

"If that is the case, my colleagues and I have indicated it will be appropriate to begin to normalize interest rates."

The markets expect the US central bank to announce the rate liftoff on Dec 16, capping a two-day meeting of the policy-setting Federal Open Market Committee.

Justifying keeping rates near zero for almost seven years, Ms Yellen said: "Would savers have been better off if the Federal Reserve had not acted as forcefully as it did and had maintained a higher level of short-term interest rates, including rates paid to savers? I don't believe so.

"Unemployment would have risen to even higher levels, home prices would have collapsed further, even more businesses and individuals would have faced bankruptcy and foreclosure, and the stock market would not have recovered."

In an open letter to Ms Yellen posted online on Oct 30 by The Huffington Post, Mr Nader said he was writing as one of millions of "frustrated" Americans who are getting near zero per cent on their traditional bank savings 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," Mr Nader wrote.

In her response, Yellen acknowledged the frustration of savers caused by their very low returns, which have "caused hardship for some of them, particularly seniors on fixed incomes."