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The Federal Reserve has been attacked for years by critics, most of them conservative, who insist that its low interest rates are bad for savers. But those attacks recently got more attention when Ralph Nader joined the fray, penning a remarkably sexist open letter suggesting both that Fed Chair Janet Yellen's policies were hurting savers and also that she would know this if she would only "sit down with your Nobel Prize winning husband, economist George Akerlof" and talk the matter over.
Akerlof is, indeed, a very distinguished academic economist, but unlike, say, Janet Yellen he's not actually known for work on monetary issues. He also, unlike Yellen, doesn't have more than a decade of experience in central banking. But it's not unusual for even the most well-known and well-regard women in economics to have trouble gaining recognition.
Yellen took the unusual step of responding with a letter of her own. It ignores the bizarre reference to her husband, but does include one of the best short summaries of why this widespread criticism is totally mistaken:
Would savers have been better off if the Federal Reserve had not acted as forcefully as it did and had maintained a higher level of short-term interest rates, including rates paid to savers? I don't believe so. Unemployment would have risen to even higher levels, home prices would have collapsed further, even more businesses and individuals would have faced bankruptcy and foreclosure, and the stock market would not have recovered. True, savers could have seen higher returns on their federally-insured deposits, but these returns would hardly have offset the more dramatic declines they would have experienced in the value of their homes and retirement accounts. Many of these savers would have lost their jobs or pensions (or faced increased burdens from supporting unemployed children and grandchildren).
What Nader (or Ben Carson or dozens of congressional Republicans and others offering this line of attack) is missing, and what Yellen is highlighting, is that "savers" who put money in bank accounts aren't a special class of people who live on Mars isolated from the experience of the rest of the economy. Savers generally also have jobs and own homes. Smart savers don't just have money in a bank account but are also putting money in a 401(k) or other tax subsidized retirement account where they own shares of stock. Moves that are beneficial to the labor market, beneficial to share prices, and beneficial to house prices aren't bad for savers, even if they happen to be bad for one particular kind of asset a saver might have.
