(Bloomberg) — Record-low borrowing costs that helped fuel the stock market rebound are insufficient to sustain a U.S. economic recovery, said Steve Miller, the chairman of American International Group Inc. (NYSE:AIG).
“It’s a fool’s paradise,” Miller said on Bloomberg Television today. “We’re basically printing money to keep everybody happy in the short term.”
The Federal Reserve has kept its target interest rate near zero since December 2008 and embarked on three rounds of bond purchases to stimulate the economy. The central bank has slowed the pace of bond buying and Fed Chairman Janet Yellen said yesterday that further changes will proceed in “measured steps.”
“Janet is going to keep rates low for a while,” Miller said in an interview with Tom Keene and Scarlet Fu. “But you can’t keep that going forever. So we need to get real on government spending’
The 10-year Treasury yields 2.75 percent, up from 1.98 percent a year ago. That’s still below the average of about 3.5 percent over the past decade. The U.S. economy expanded for a fourth straight year in 2013, after contracting in 2008 and 2009, and the Standard & Poor’s 500 Index advanced 30 percent.
Executives from some of the largest insurers — which invest mainly in bonds — have cited the harm of low rates. In September, Axa S.A. Chief Executive Officer Henri de Castries said he’d welcome higher rates as an end to ‘‘financial repression.” MetLife Inc. CEO Steve Kandarian said in March that low rates impose a tax on savers and hurt the ability of companies like his own to offer some guarantees.
Miller, 72, has been chairman of New York-based AIG since 2010. He worked with CEO Robert Benmosche to help repay the company’s government bailout in 2012.
In response to a question about how keeping the main interest rate low affects savers and those on fixed incomes, Yellen said yesterday that the larger issue is restoring economic growth, which will eventually lead to higher rates.
“It’s important to recognize that interest rates are low for a fundamental reason,” Yellen said in her first public remarks since replacing Ben S. Bernanke as chairman. “Our objective in keeping interest rates low is to promote a stronger recovery, and in a stronger economy savers will be able to earn a higher return, because the economy will be able to generate it.”
–With assistance from Jeff Kearns in Washington. Editors: Dan Kraut, Steven Crabill