The 60 Minutes interview of Bernanke was aired tonight. Just like the last 60 Minutes interview in March 2009, there was no question about the negative effects of the ultra low interest rate policy on retirees and savers.
When Scott Pelley of 60 Minutes asked about what caused the Fed to start the purchasing of $600 billion in Treasury securities, also known as Quantitative Easing 2 (QE2), Bernanke gave the following reasons:
It has to do with two aspects. The first is unemployment. The other concern I should mention is that inflation is very, very low, which you think is a good thing and normally is a good thing. But we're getting awfully close to the range where prices would actually start falling.
At the start of the interview, Bernanke had the following to say about unemployment:
At the rate we're going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of say five or six percent.
That could mean the ultra low interest rate policy could last for many years.
Scott Pelley asked about the risk of inflation. Bernanke said he thinks this fear is "way overstated". He said the Fed isn't printing money, and the "money supply is not changing in any significant way." According to Bernanke:
What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that's what we're gonna do.
Our best hope for higher deposit rates is a growing economy with declining unemployment, and hopefully, Bernanke and the Fed will be able to unwind this ultra low interest rate policy fast enough so inflation doesn't get out of control. What's worrisome is a condition in which inflation is rising while interest rates stay low. And it becomes more worrisome when it always seem like inflation that retirees and savers see is higher than what is measured by the government.