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December 18, 2015 at 10:24 AM
This week, the Federal Open Market Committee (FOMC) increased the target range for the federal funds rate by one quarter of a percentage point, from a 0.25 percent to 0.5 percent.
The Federal Reserve Board of Governors voted separately to increase the discount rate, or rate for direct loans to member banks, by one quarter of a percentage point, to 1 percent.
See also: What Fed increase? Top Treasuries forecaster is bullish for 2016
It was a little hard to find references to insurance companies, pension plans or even garden variety retirement savers in news stories about the rate increase. We ran a wire service story about the increase, and even the reporter who wrote that story seemed to somehow overlook entities that control huge chunks of the economy.
But, of course, prolonged moves to keep rates at artificially low levels for years have starved insurers, pension funds and individual retirement savers’ of access to relatively stable investment income from bonds. The central bankers in the United States and the rest of the world have, in effect, backed efforts to steal money from the retirees of the future, including the aged long-term care (LTC) services recipients of the future, to help the people of today buy new cars and rickety new houses.
Many economists say that weak business demand for capital is the true driver of low rates, and that central banks have only a limited ability to affect rates on the highly rated, long-term corporate bonds insurers, pension funds and many individual retirement savers prefer to buy. But the central bankers have done nothing to use whatever market-moving powers they do have to get interest rates out of the basement.
Of course, they are smart, hard-working, patriotic people who just want the best for everyone, including insurance companies and retirement savers, but I think one the reasons for their lack of action on interest rates is misleading inflation indicators.
