Do Low Interest Rates Make a Difference?

Tuesday, August 16, 2011

The Federal Reserve has pledged to keep interest rates low for the foreseeable future. Does it change your behavior? Daniel Gross, columnist and economics editor at Yahoo! Finance, discusses the possible effects of this decision on the financial habits of individuals.


Daniel Gross

Comments [12]

Arthur from Astoria, NY

What low interest rates? The only "low" rates are the savings accounts. The banks seem quite happy keeping my loan and credit card interest rates high. The same banks that have jacked up overdraft fees, out-of-network ATM fees, cash advance fees, and other charges that are, frankly, balderdash. All while they've shed jobs and closed branches (which should, in theory, lower my costs as well).

The low interest rates benefit these same banks, so they can pay back the giant bailoff I and others gave them through my very own U.S. government. Thanks guys!

Aug. 16 2011 10:54 AM
jgarbuz from Queens

Someone just asked, what does the National Debt mean to "me?" At some point, the US Treasury will have to start printing money to pay that debt. At that point, inflation will start to really bring down the value of your dollar and what you can buy with it.

Others elsewhere will at some point start turning to something else of value besides the dollar to keep their wealth intact, such as gold or Chinese RMB's, etc. Then the value of the dollar can really start to plummet, and we could have a full blown Depression as well.

We are far from that now, but a lot closer than we were a few years ago. It's a precarious situation and nobody really knows when we might fall off the perch.

Aug. 16 2011 10:29 AM
Sophie from Poughkeepsie, NY

@jgarbuz from Queens

I agree with you. One can live quite well downsized and having less stuff.

And the guest is partly wrong; if I want a car I can buy a used one with cash. And not everyone wants to or needs to own a home.

Aug. 16 2011 10:27 AM
Donna from NYC

You know, again and again, who is making money off this crisis? The Fed. Hmm, why is that? Why are they in control of the money supply in this country again?

Aug. 16 2011 10:23 AM
Barbara from Manhattan

Re low interest rates: For retired people trying to live on conservative investments, low interest rates are a calamity. Bonds are paying a pittance.

B. Zucker

Aug. 16 2011 10:20 AM
RJ from prospect hts.

Interest rates? Confidence? Demand? Please!!!

What matters is jobs. If there are no jobs, there is nothing to demand and nothing to demand anything with. Anything and everything else is wealth obscuring reality and taking advantage of ignorance.

But we're sitting around waiting for the same wealth to deign to spend something here and there to hire us domestics so that maybe, just maybe we'll have a few pennies to put a downpayment on something they can take away later through foreclosure or layoffs.


Aug. 16 2011 10:20 AM
jgarbuz from Queens

I agree with Sophie,

When people are encouraged to spend, it means more imports from China, or more imports of oil to provide the gasoline. But it is true that most employment is in retail or services or fast foods, etc., whose jobs are dependent on frivolous spending. So our economy is in a trap. If we spend more, it means more trade deficits that increase the national debt. If we buy less, it means more unemployed cashiers, fast food workers, and such. So the gov't wants to find some equilibrium point between too much and too little spending and/or saving. But until Americans downsize their living arrangements, OR until the US finds some way of exporting more goods, by manufacturing or whatever, we are doomed to a sinking standard of living, period.

Aug. 16 2011 10:20 AM
Sophie from Poughkeepsie, NY

@Susan from nyc

You are preaching to the choir (me)! More people need to think like you.

Aug. 16 2011 10:15 AM
Sophie from Poughkeepsie, NY

We live w/o credit cards or credit of any kind. We are a cash only household. If we don't have the money to do or buy something we'll save until we do, or we don't do it.

We've learned the hard way being frugal is the answer and the NOT buying, buying, buying for the heck of it is a better way to go.

I'm disappointed that the government is asking people to spend money they don't have to keep the economy going. That's part of what got us here in the first place!

Aug. 16 2011 10:13 AM
jgarbuz from Queens

Hey Gary,

How dumb were they to believe in paper money and the "full faith and credit" of the United States? :)
The fact is, people want to live forever, but most can only work until their mid-60s. But today many live into their '90s, and there is no way to save for 20 to 30 years of retirement! Only a handful of people will ever be able to save enough to live at the standard of living they became accustomed to. Most will be lucky to survive on dog food, on a shrinking gov't check. Lucky indeed!

In "ancient times" you had to have lots of land and strong sons to support you if you were lucky enough to survive to old age.

What people really should do is prepare for old age by DOWNSIZING their living arrangements to a bare minimum, i.e. a studio apartment for example, etc., to prepare for the shrinking "American dream" in old age. And get used to using public transportation. Those depending on various retirement-investment schemes are going to be disappointed in the not too distant future, when the majority of baby boomers have indeed been forced to retire.

Aug. 16 2011 10:12 AM
Susan from nyc

My only current debt is my mortgage, which, given Bernanke's kill-the-savers program, I intend to pay off in full with savings (mortgage 6.5%; savings interest <1%). I would have considered refinancing, but the fees were prohibitive, and even at 4.5% I would be better off taking it out of the savings that are being precipitously eroded; deliberately inflating the economy (as Rogoff recommends) will make that even worse. Credit cards paid in full every month. Was driving a 15-year-old car until I inherited an 8-year-old car, so I won't be buying a new car. My plan is to unwind my debt to $0 and walk out of the casino.

Aug. 16 2011 09:56 AM
gary from queens

Dumb question.

For over a decade, low interest rates have been devastating to the elderly, and others near retirement who live off the interest from their savings and retirement accounts.

How stupid they were to think that saving their money, instead of indulging themselves, would yield some reward later

Aug. 16 2011 09:12 AM

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