By Allison Bell
Low interest rates may be a big help even to people who think of themselves as savers, not borrowers.
Federal Reserve Chairman Ben Bernanke made that argument Monday during a speech in Indianapolis.
Bernanke raised and answered five questions about the Federal Reserve system, inluding one about how the Fed's current low interest rate strategy is affecting "savers and investors."
The Fed has been keeping rates low since the start of the recession that appeared in 2008 in an effort to help businesses and home buyers borrow money at affordable rates.
Securities and rating analysts have pointed out that insurers that provide long-term care insurance
(LTCI) long-term disabiliy insurance and other forms of insurance that include embedded investment guarantees are acting savers when backing those policies.
Some LTCI market watchers have suggested that competition may be falling off in the private LTCI market partly because low rates interfere with insurers' efforts to earn acceptable returns on general account assets.
Bernanke acknowledged that some fear the prolonged interest rates could lead to price inflation
, and he also acknowledged savers' concerns about low interest earnings.
"My colleagues and I know that people who rely on investments that pay a fixed interest rate, such as certificates of deposit, are receiving very low returns, a situation that has involved significant hardship for some," Bernanke said.
But the low rates are the result of the recent financial crisis, which was "the worst shock to this nation's financial system since the 1930s," Bernanke said, according to a written version of his remarks provided by the Federal Reserve System.
Interest rates are low throughout the developed world, Bernanke said.
"A second observation is that savers often wear many economic hats," Bernanke said. "Many savers are also homeowners; indeed, a family's home maybe its most important financial asset. Many savers are working, or would like to be. Some savers own businesses, and — through pension funds and 401(k)
accounts — they often own stocks and other assets. The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth, and led to sharp declines in the values of many homes and businesses."
The best way to make everyone happy is to build a stronger economy, to pump up asset values and create jobs, Bernanke said.
"Without a job, it is difficult to save for retirement or to buy a home or to pay for an education, irrespective of the current level of interest rates," Bernanke said.
if the Fed raises rates too soon, house prices will fall, the value of businesses will fall, and no one, including savers, will be happy, Bernanke said.
Originally published on LifeHealthPro.com