Study: Fed Policy Has Cost Americans $749 Billion in Purchasing Power
April 27 2015 - 9:09AM
Federal Reserve policy has cost the nation's bank depositors $749
billion in purchasing power over the last six years. That's
according to a study by personal finance website MoneyRates.com
that estimates how historically low interest rates have impacted
the value of the nation's deposits.
The study calculates the amount U.S. depositors have effectively
lost because rates on short-term deposits have failed to keep pace
with inflation. Historically, short-term interest rates have
usually stood near or above the rate of inflation, but the Federal
Reserve's extraordinary measures to keep rates low in the wake of
the Great Recession – notably its aggressively low federal funds
rate – have changed that relationship significantly.
"Historically, savers have been able to count on earning a
little more than inflation on their CDs, savings accounts and money
market accounts," explains Richard Barrington, CFA, senior
financial analyst for MoneyRates.com and author of the study. "The
Fed's extreme low interest rates have turned that upside down.
Savings have been losing rather than gaining value over the past
six years."
Despite a mild reprieve for savers over the last 12 months –
inflation actually trailed deposit rates during this period, which
allowed the nation's depositors to regain roughly $8.4 billion in
purchasing power – the six-year loss fell by only 1.1 percent to
$749,443,213,010.
There has been widespread speculation that the Fed could raise
the federal funds rate, which has stood at a target of 0 to 0.25
percent for more than six years, sometime in 2015. Still, based on
the Fed's apparent concern that a dramatic lift to the federal
funds rate could shock the economy back into decline, short-term
bank rates appear unlikely to approach historical norms anytime
this year.
Barrington says that one of the more frustrating aspects of
recent Fed policy is that it has not produced the robust economic
recovery for which many have hoped.
"Roughly six years into the recovery, the economy still hasn't
been able to sustain any momentum, so you can't really say that the
Fed's policy has been a roaring success," says Barrington. "In
fact, it would be fair to ask if the economy would be better off
with those three-quarters of a trillion dollars in the pockets of
people who would be in a position to spend it. Think about it – a
three-quarters of a trillion dollar stimulus package that wouldn't
have cost the government a dime."
For more details on the study, please see the full feature on
MoneyRates.com.
Methodology
MoneyRates.com calculated the estimated loss in purchasing power
caused by Fed policy by taking the total amount on deposit at U.S.
banks each year, multiplying it by the average bank money market
account interest rate and then adjusting the figure for inflation.
The difference between that figure and the original amount on
deposit represents the estimated loss.
About MoneyRates.com
MoneyRates.com has been a leading source of information on bank
rates, personal finance, savings accounts and investing since 1999.
The site seeks to provide the highest rates on CDs, money market
accounts and high-yield savings accounts. MoneyRates.com is owned
and operated by QuinStreet, Inc. (Nasdaq:QNST), one of the largest
Internet marketing and media companies in the world. QuinStreet is
committed to providing consumers and businesses with the
information they need to find, research and select the products,
services and brands that best meet their needs. The company is a
leader in visitor-friendly marketing practices. For more
information, please visit QuinStreet.com.
CONTACT: Alex H. Bryant
MoneyRates.com
212-863-4753
abryant@quinstreet.com
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