Newspaper article The Christian Science Monitor

Federal Reserve Hikes Interest Rates: Are Its Policies for the 1 Percent?

Newspaper article The Christian Science Monitor

Federal Reserve Hikes Interest Rates: Are Its Policies for the 1 Percent?

Article excerpt

The Federal Reserve made its first interest-rate increase in almost a decade Wednesday, upping the target for short-term bank lending by one-quarter point to between 0.25 and 0.5 percent.

The move got plenty of advance warning, and United States financial markets generally took it in stride. But the action was controversial as well as anticipated.

Criticism of the Fed on all fronts has increased markedly since the Great Recession. Some of the criticism has been purely financial, with pundits Wednesday questioning the timing and wisdom of the rate hike.

But more deeply, the criticism is a sign of Americans' heightened anxiety about an economy that seems to now be in a state of persistently low gear. At a time when income inequality has become a growing political concern, the question is whether America's central bank is fundamentally serving the interests of all the people or mainly of bankers and the wealthy.

Specifically, have Fed policies been made the nation's rich-poor income gap worse?

The arguments are manifold: Low interest rates have hurt average Americans trying to save for retirement. Fed monetary stimulus efforts have mostly propped up assets for the wealthy, such as stock prices. Or they have helped economies outside the US.

Yet the rate-hike decision Wednesday points to how Fed decisions can cut both ways.

On one hand, the low interest rates have made saving difficult. In fact, since the recession, putting money in interest-bearing accounts has actually been a money-losing proposition when inflation is factored in.

"By artificially keeping interest rates below the market rate, average ordinary citizens have a tough time earning interest, have a tough time making money," said Sen. Rand Paul of Kentucky at a November debate for Republican presidential candidates. "They're actually talking now about negative interest."

After Wednesday's move, some people may now be able to find incrementally higher income on their savings. …

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