March 1, 2012 / 4:06 PM / 8 years ago

Fed's Raskin: Stronger U.S. economy will help savers

WESTPORT, Connecticut (Reuters) - While record-low interest rates have cut income for savers, they will ultimately nurse the U.S. economy back to health, increasing returns for savers and investors alike, a top Federal Reserve official said on Thursday.

“Critics of the Federal Reserve’s accommodative monetary policy are correct that the low level of interest rates represents a strain on households who rely on income from interest-bearing assets,” Federal Reserve Governor Sarah Bloom Raskin said in a speech to the Y’s Men of Wesport/Weston.

But she said the Fed’s goal was “to strengthen the economic expansion and, over time, return the economy to sustainable rates of output growth, unemployment, and inflation.”

Ultimately, Raskin said that would lead to higher returns for stocks, real estate, businesses and retirement accounts, where the bulk of household wealth is held.

“For these other types of assets, rates of return depend primarily on the strength of the economy and how fast the economy is growing,” Raskin said.

The Fed has cut interest rates to near zero and said it will likely hold them there through 2014.


Raskin said such an unprecedented period of low rates is necessary to support an economy that, while improving, is only likely to expand at a gradual pace over the coming months.

The Fed expects the U.S. economy to grow between 2.2 and 2.7 percent this year, not much different from the pace seen in the second half of 2011.

Higher gas prices may reduce household purchasing power in coming months, she said, but probably would not raise inflation expectations or inflation, which Raskin said is expected to run at or below the Fed’s long-term goal of 2 percent.

With housing still depressed and credit still hard to come by for small businesses, “the headwinds that have been restraining the expansion for some time have been easing, at best, only gradually,” Raskin said.

Raskin said low rates are also helping households, as evidenced by increased purchases of motor vehicles and other big-ticket durable goods that can be financed cheaply.

“And in many cases, households have been able to refinance their mortgages into lower-rate loans, freeing up income for other uses,” she said.

Reporting by Steven C. Johnson; Editing by Chizu Nomiyama

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