Yellen blames low rates on weak economy

Janet Yellen, the new Federal Open Market Committee chair, said today that returns on bonds are low mainly because borrowers’ demand is weak.

“There is an excess of savings relative to the demand for the savings for investment purposes, Yellen told lawmakers at a hearing on monetary policy organized by the House Financial Services Committee.

Yellen also talked about her views on insurance company regulation and said she would do what she can to promote efforts to prepare for the effects of the aging of the U.S. population on Medicaid, Medicare and Social Security.

Yellen succeeded Ben Bernanke as FOMC chair Feb. 1.

She takes over at a time when low interest rates are hitting life insurers’ long-term care insurance, long-term disability insurance and annuity operations hard.

No one at the hearing talked about the effects of low rates on life insurers, but Rep. Shelley Moore Capito, R-W.Va., told Yellen that low rates are hurting the older residents in her district who are trying to save for retirement, or already living off of retirement savings.

“Certainly, a low interest rate environment is a tough one for retirees,” Yellen told her.

But retirees may also have investment portfolios or working-age children who benefit from low rates, and rates will rise when the economy improves, Yellen said.

Another lawmaker, Rep. Steve Pearce, R-N.M., said retirees in his district suffer both from low interest rates and from restrictions regulators have put on lenders’ ability to finance the purchase of manufactured homes.

Pearce said he sees “a de facto war on the poor coming from Washington.”

“It is very important to address [policies'] impact on credit availability,” Yellen said.