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Federal Reserve Growth Essay

653 Words3 Pages

Federal Reserve rates have been at an all-time low since the advent of the Great Recession. Low interest rates was the medication for a struggling economy. It was intended to encourage banks to lend to small businesses and spur growth but the extended low interest rates might actually hurt the small guy. An extended low interest rate period can be a harsh blow to the face of many pensioners who invested in bonds. Low rates also have other side effects such as increased corporate debt and may cause investors to take more risks. Interest rates must be raised now in order to prevent larger problems in the near future. Low interest rates with three rounds of quantitative easing has driven 10 year Treasury notes yield down to around 2% from its pre-2008 4.5% high. The move was artificially influenced by the Fed to motivate bank lending but this has caused many …show more content…

America’s largest bank JP Morgan Chase has grown from $1.3 trillion in assets to almost $2 trillion today. Has this growth benefit the American public? No. Consumer confidence is currently at a 15 month low. The Consumer Price Index is also at year lows as well. This means more people are reluctant to spend not because of expensive prices but because of other underlying factors such as stagnant wages (Nominal wage growth has been stagnant at around 2% for the past five years). Another metric to evaluate is the Workers’ share of corporate income. In 2008 83.7% of corporate income went to workers and today that number is only 74.1%, a 9.6% drop. Companies are bringing in more money than with easy credit created by the low Federal Reserve rates but they are not reinvesting the money into the American workforce. Low interest rates might seem like a winning situation for corporations and a losing formula for regular people but it can turn into a lose-lose situation if interest rates are continued to be suppressed at this

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