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Fed admits it’s hurting CD rates

By Claes Bell, CFA · Bankrate.com
Monday, November 7, 2011
Posted: 4 pm ET

If you're annoyed about rock-bottom CD rates, take some comfort in the fact that Federal Reserve Chairman Ben Bernanke feels your pain. When asked about the issue by Bankrate contributor Katherine Lewis at a press conference last week, Bernanke acknowledged Federal Reserve policies, including Operation Twist, were pushing down yields on CDs:

We are quite aware that very low interest rates, particularly for a protracted period, do have costs for a lot of people. They have costs for savers.

But Bernanke insisted that while they may be painful for CD investors in the short term, the Federal Reserve's monetary easing efforts are better for everyone in the long run:

I think the response is though that there is a greater good here, which is the health and recovery of the U.S. economy and for that purpose, we've been keeping monetary policy conditions accommodative trying to support the recovery, trying to support job creation.

After all, savers are not going to get very good returns in an economy which is in a deep recession. And ultimately, if you want to earn money in your investments, you have to invest in an economy which is growing.

And so, we believe that our policy will ultimately benefit not just workers and firms and households in general but will benefit savers as well as the returns that they can earn on their investments will improve with the improvement in the economy.

The Federal Reserve's single-minded focus on achieving its dual mandate of stable prices and full employment at the expense of significant swaths of the American public isn't anything new.

You'll recall in the 1980s that when then-Chairman Paul Volcker was battling inflation with sky-high interest rates, many consumers were angry about mortgage rates in excess of 12 percent, but those complaints largely fell on deaf ears. Savers did pretty well during that period, but now that's been reversed; savers are suffering, and borrowers are golden.

Still, this can't be heartening for CD investors who depend on CD yields to pay at least a portion of their living expenses. The Fed has pledged to keep the federal funds rate target near zero until 2013 at least, so it looks to be a lean year.

What do you think? Should CD investors be asked to make sacrifices for the "greater good"? Should the Fed be paying more attention to the needs of CD investors?

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6 Comments
Paoli
November 20, 2011 at 3:32 pm

I don't think Bernanke or anyone in Washington gives a hang about what they are doing to savers. We could be the "spenders" they are looking for but instead we have to basically "hoard" what we have in hopes that sanity will enter Washington and they will allow interest rates to rise. For crimmy sakes, I am NOT hoping for 6% but a 3% 5 yr CD would be a great welcome in 2012. My great fear is they may tank us even more in 2012! Their actions make NO sense to my thinking. I have written emails to Bernanke, Obama, and my senators about this subject but have yet to get a reply. Could it be that they have no intention of helping savers?

NO stocks 4 me
November 09, 2011 at 11:00 am

You know I don't even know where to start with that, I guess it my suffice just that the SOB (smart old banker)at least acknowledges that fact. I for one don't care what Larry, Jimmy and the gang at CNBC have to spout, (except maybe Rick) but I know they're just purring like kittens on bernakapart's lap.

I for one won't put a penny of my "principle" it took me years to save in they're gambling game marrkeeet. I'll just wait it out as I have before. I can't wait for the 80's interest rates again, at least this time I have some money to put in those "high" CD's.

No cell phone, LCD, or high speed ISP for me buddy. just what you don't wana hear is it Ben? maybe when the rates go up I will actually "spend" on those things.

Roy Anderberg
November 08, 2011 at 3:32 pm

Same old thing, punish the prudent and reward the reckless. Nice policy for the gods in government.

Ben
November 08, 2011 at 2:21 pm

I agree with the previous poster 100%, and would like to add that everything our government is doing to the economy is nothing but a financial distortion in an attempt to motivate everyone to take on stupid "investment" risks with their hard earned cash that we normally would not take. Meanwhile they rescue the uber-rich bondholders of the "too big to fail" institutions....as if the underlying account holders or counterparties were ever at risk...NOT!

Precious Metals Investor
November 08, 2011 at 7:48 am

Bernanke should be on trial for the hidden tax of these Quantitative Easing programs. It's all euphemism and innuendo -- for MONEY PRINTING.

You want the economy to grow? Encourage people to save! You cannot solve a debt-based crisis by taking on more debt.