With the possible exception of a dissenting vote by Chicago Fed President Charles Evans in today’s decision by the policy making committee of the central bank to do nothing (Evans apparently wanted more money printing sooner rather than later), there were no real surprises from the Federal Reserve today – freakishly low interest rates through at least mid-2013 are still on tap, Operation Twist is ongoing, recent economic data showed modest improvement but forecasts were revised downward, and all policy tools remain at the ready.
The press conference following the policy meeting was similarly uneventful as a number of journalists asked about the next round of money printing to buy mortgage backed securities, currently believed to be the preferred option for QE3 after a recent round of speeches by the board.
When asked directly, Chairman Ben Bernanke noted with a little twinkle in his eye that the Fed’s printing presses could indeed be summoned to action if the need arises.
Aside from saying about six or eight times how good a job the central bank is doing in keeping inflation at just two percent (despite the official government data putting it at a three-year high of 3.9 percent just last month), about the only surprise came when the Fed chief was asked what advice he would offer to savers looking for a decent return on their fixed income investments who are being punished by his freakishly low rates.
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 … The response is 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 accommodative … After all, savers are not going to get very good returns in an economy which is in a deep recession. Ultimately, if you want to earn money on your investments, you have to invest in an economy that is growing.
Tell that to some 75-year old with $50,000 in the bank who, up until Bernanke became Fed Chairman, could at least count on this tidy little sum to generate a few thousand dollars a year in risk-free returns to help pay the bills.