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Letter: Fed's policies hurt savers

Federal Reserve Chair Janet Yellen at the Jackson

Federal Reserve Chair Janet Yellen at the Jackson Hole Economic Policy Symposium near Jackson, Wyo., on Aug. 21, 2014. Credit: AP / John Locher

Federal Reserve Chair Janet Yellen rightly decries the extent of and increase in inequality in the United States ["Fed chief warns of widening income gap," News, Oct. 20]. This trend runs counter to America's historical identity as a land of opportunity for all.

Yet, Yellen's own monetary policy, which broadly follows that of her predecessor, Ben Bernanke, is actually contributing to wealth and income inequality. The Fed's policy since the start of the Great Recession has caused interest income to fall by more than $600 billion, because of emphasis on near-zero interest rates and quantitative easing -- which the Fed recently ended. This represents a significant reduction in disposable income.

Fed policy seems to think that the loss of savings income is compensated by a rise in the value of stocks and bonds. This points to an unintended outcome -- since millions of senior citizens rely on their savings income. Such people tend to be very conservative investors who will not be pushed into riskier investments. Rather, they tend to stick with bank deposits, CDs, money market accounts, etc., and adapt to their lower (close to zero) interest income by spending less.

In this regard, Raghuram Rajan, the former chief economist for the International Monetary Fund, appropriately described the Fed's policy as "expropriating responsible savers to favor irresponsible banks." He urges the Fed to raise rates on savings, and I agree!

Yellen's heart is in the right place, but her policy is not.

John Lombardi, Woodbury

Editor's note: The writer is an emeritus professor of economics at LIU Brooklyn.