A Federal Reserve study has been highlighted by several news media reports which have primarily focused on how family net worth has been hurt by the financial crisis and the recession. This USA Today article reported that "The median U.S. household lost nearly 39% of its wealth from 2007 to 2010". Much of this lost wealth is due to large declines in home values. I reviewed this Federal Reserve study and found some other findings that show the problems of the Fed's zero interest rate policy.
Part of the study looked into how incomes have changed from 2007 to 2010. The study broke down the incomes by categories, and one category is "Retired". Table 1 on page 11 shows that the mean income of families with a retired head of household has fallen from $53.5K to $44.4K. That's a decline of 17%. It's likely that much of this decline can be attributed to the big decline of interest rates. This reduction is probably becoming much worse as retirees' long-term CDs and bonds mature.
In a March Congressional hearing, Chairman Bernanke claimed that "something less than 10 percent of all savings by retirees is in the form of fixed-interest instruments like CDs." According to Chairman Bernanke, most of the savings were in assets like stocks which depend on a strong economy.
This Federal Reserve study has data that contradicts Chairman Bernanke's claim. On page 27, table 6 shows the median values of family financial assets in 2007. According to this table, the median value of CDs for retired families is $31.4K and the value of bonds is $83.3K. The value of stocks is only $30.1K (and that's before the market crash). The table shows a value of $81.9K for pooled investment funds and $52.4K for retirement accounts. These categories aren't useful in my opinion since these could hold stocks, bonds or CDs.
This Federal Reserve study shows that CDs do make up a significant portion of the financial holdings of retirees. The study also shows that retirees have seen a large decline in income from 2007 to 2010. This is understandable based on the big decline in interest rates during this time. I hope Chairman Bernanke and the other Fed members on the FOMC consider these costs. I'm afraid we'll see much bigger income declines if the zero interest rate policy continues for multiple years. Eventually, all CDs which had decent yields will have matured.