Savers are getting the short end of the stick while it remains a borrower’s paradise thanks to low inflation and the Federal Reserve’s refusal to raise interest rates.
Normally, a serious bout of inflation would result when you have massive federal budget deficits and the Federal Reserve essentially creating money out of thin air like we have. So far, however, there’s not been any real inflation to speak of.
Over the last year, wholesale prices (excluding food and energy) are only up 1.9%, while the consumer price index was up 1.5%. Both figures are still below the Federal Reserve’s 2% inflation goal.
The Fed, meanwhile, is keeping interest rates low in an effort to try to control unemployment. At its inception, the Fed’s original mission was solely to create price stability. But over the years, it also became charged with the duty of doing what it could to help curtail joblessness.
The Fed’s latest move is a clear signal they’ll keep inflating the economy to try to bring down unemployment, as it has historically done.
So borrowing remains cheap and savers are essentially punished with low interest rates. Little wonder then that stocks are riding so high. With puny returns on savings and CDs, people are practically being driven back into the stock market!