Editorial: Interest rates should rise
Time for interest rates to return to normal.
Seattle Times Editorial
THE rise in interest rates is welcome. The current regime, in which the saver is expected to supply funds to borrowers for next to nothing, is unsustainable.
Rates this low come at the expense of lenders — and the true lenders are not the banks, which are doing fine, but their depositors, many of them retirees who had expected to live off the interest on their savings.
The true lenders also include pension funds, which count on bond interest to fund their members’ retirement checks. One reason so many pension funds are in trouble is that the Federal Reserve has kept rates so low for so long.
America has gone with short-term rates at almost zero since the beginning of 2009 — four and a half years. On Friday the three-month Treasury bill rate was still only 0.05 percent. Do the math: To use your $10,000 for three months, your government will give you $1.25.
Rates have not been this low for this long since the early 1950s. Then the Federal Reserve was under the thumb of the Treasury, whose aim was to finance the war debt.
This time, rates have been kept low because the financial crisis of 2008 damaged the banks and inhibited borrowing. That reason now fades.
In a crisis, low rates act as first aid. In an expanding economy, they invite speculation and economic bubbles. That risk now intensifies.
Always at times like these there will be voices saying, “Don’t raise rates yet. We haven’t recovered.” Not everyone has recovered.
But last week the state reported that the unemployment rate in Seattle had dropped to 4.7 percent. The rest of the country is doing better than it was.
There is a new economic normal that requires interest rates to be closer to normal.