Fed Chair Janet Yellen just responded to Ralph Nader’s terrible letter arguing with the Fed over zero interest rate policy. Nader apparently has no grasp on basic macroeconomics. The rationale for the policy is that the Fed’s job is to keep interest rates at the best possible place for maintaining stable inflation and full employment. By this metric the Fed has been failing for 6 or so years because interest rates have been too HIGH, not too LOW (inflation is below the Fed’s 2% target and inflation is just now returning to the low levels that are considered ‘full employment’).
It’s too bad that savers aren’t making high returns from interest rates on cash in their savings accounts, but as has been pointed out… it’s mostly very rich people who have lots of money sitting around in their savings accounts, and it is mostly well-to-do people who live off of interest earnings. What Yellen does not elaborate on in her response letter is that seniors/retirees are overwhelmingly poor, and many rely almost exclusively on Social Security. If you want to help extremely poor seniors: expand Social Security!
Yellen also does not mention that many of the factors keeping interest rates extremely low are secular (meaning longer-term factors), not related to the Federal Reserve. Importantly, demographics in the U.S. make it much harder to sustain higher levels of growth and corresponding higher interest rates: the U.S. population is aging and the population will grow more and more slowly, meaning that possible economic growth will presumably be slower in the future. This means that it is increasingly unrealistic to believe that most seniors can live off of retirement savings/interest, and it becomes more important for retirees to have fixed sources of income. Nowadays that’s pretty much Social Security (defined benefit retirement plans have mostly been destroyed).
[Sidenote: another policy solution to deal with persistently low interest rates is significant expansion of immigration into the U.S. — this used to be one of the great ‘conservative’ economic ideas… not so today…]
Unfortunately, the Fed cannot (/should not) comment on these types of policy issues (presumably because the Fed keeping it’s nose out of Congress’ business means Congress will keep it’s nose out of the Fed’s policy decisions… that arrangement isn’t working out well right now as Congress tries to tighten its grip on the Fed and Milton Friedman turns over in his grave).