WASHINGTON - "Super-low interest rates haven??t done what they usually do after a recession," wrote the Associated Press earlier this week, which notes that the home market remains dim and consumer spending is lagging.
For those who depend on interest income ?" especially retirees ?" the low rates are causing significant financial stress, as interest income has dropped 27 percent from 2008 to 2010.
Some economists are concluding, therefore, that the low rates may actually be harming the economy: As savers earn less, they spend less. And consumer spending drives nearly 70 percent of the U.S. economy.
The Fed is "turning the faucet, and nothing??s coming out," said William Ford, former president of the Federal Reserve Bank of Atlanta. "I don't see any pluses on the plus side of the ledger...But they're ignoring the strong negative effect that they're having. They're killing savers. Retirees are earning nothing on their life savings."
Earlier this month, the Fed announced that it would keep short-term rates near zero through mid-2013 ?" unless the economy improves.
The low rates have hurt retirees and other savers, with savings account yielding, on average, 0.15 percent. Indeed, America??s total interest income dropped from $1.38 trillion in 2008 to $1.01 trillion in 2010, according to the federal Bureau of Economic Analysis.
Additionally, pension funds are feeling the squeeze, as low rates have "shorted" the nation??s 100 biggest pension funds by $254 billion of what they needed to meet obligations to retirees at the end of July.
Despite the low interest and mortgage rates, home sales continue to struggle, and the average sales price of an existing home has dropped 30 percent since before the recession.
The bottom line, according to critics of the low-rate strategy, is that the economy isn??t improving enough to make the financial pain to savers worthwhile.
"Someone is paying a price for ultra-low interest rates: the patient and uncomplaining saver," said Raghuram Rajan, a University of Chicago finance professor.
The Associated Press acknowledged, though, that the low rates "have kept the economy from getting worse??prevent[ing] a dangerous deflationary spiral of falling prices, wages and profits."