Life, liberty, and the pursuit of risk-free returns.
That's what savers seem to think this country was founded on, and when they don't get it, they get grumpy. They whine, they complain, they cry that the government has thrown them, along with assorted grannies, under the bus. But they don't realize that nobody is entitled to get good risk-free returns. If you don't like the returns you're getting on your savings, you should save it in something else.
When you get down to it, there really isn't a more coddled group than savers. We directly subsidize them with no apparent payoff—401(k)s cost taxpayers about $240 billion over ten years, but probably don't increase overall savings much, if at all—but that isn't enough for them. They want indirect subsidies too. They think they deserve to be able to get nice returns without having to do any work. In other words, they want the Federal Reserve to raise rates so their bank accounts will pay more (or some) interest. Indeed, at this week's Fed press conference, an L.A. Times reporter reflecting these concerns asked Fed Chair Janet Yellen whether she could give people an "assurance" that it'll lift rates from zero soon, because they need more interest income.
Savers need to stop whining. The Fed's job isn't to guarantee savers a good risk-free return. The Fed's job is to keep the economy in the Goldilocks zone where it's not growing so fast that inflation is a problem, but not growing so slowly that unemployment is. Sometimes doing that means interest rates are high, but right now it doesn't. Inflation is still well below the Fed's 2 percent target, and there are still enough people either looking for work, too discouraged to do so, or hoping to find a full-time job while they hold down a part-time one that it seems like there's still some slack left in the labor market. So there's no economic rationale for raising rates now. Sorry, savers.
Or, more appropriately, sorry, savers who insist on only saving money in their bank accounts. Because if you're willing to take a little risk, you can get the returns you're looking for. In fact, that's part of the point of the Fed's zero interest rate policy. It's trying to get people to put their money to work instead of just sitting on it. Now, I know investing is hard, but there are still some easy options out there if you aren't happy with the meager-to-nonexistent interest your bank is offering. Just put your money in a general index fund—stocks if you want to take some more risk, or bonds if you don't—and you don't have to know anything at all, really. That might not be much consolation if you're already retired and don't feel like you can take any risk, but life, as you may have noticed, isn't fair. It'd be even less fair if we put people out of work just so you could a return without taking a risk.
The real problem, though, with saying the Fed has forced savers into a Hunger Games-style dystopia is it rests on a narrow definition of "saver." Stock investors, after all, are savers too, and the Fed's zero-interest rate policy has been good for them. Not only that, but it will be good for people who have just kept their money in the banks, at least compared to all the alternatives. How is that possible? Well, suppose, as former Fed Chair Ben Bernanke does, that the Fed had raised rates before the economy was ready for it. People who saved money in bank accounts would have been a little better off for a little while, but not for long. That's because the Fed couldn't keep rates higher than they "should" be without hurting the economy so much that it had to lower them again—which would have been the case at any time in the past six years. That would only push back the date at which the Fed would be able to raise rates for good, and, in the interim, hurt stocks too. In other words, it's hard to think of anything that'd be worse for savers than giving them what they want.
So if you want better returns, get them. But you're not entitled to getting 4 percent returns from the Fed.