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Americans concerned over Fed’s low interest rates

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David Brancaccio: America’s chief guardian of interest rates, Ben Bernanke, is on Capitol Hill today briefing lawmakers and the world about the state of the U.S. economy. It’s possible Bernanke could drop a hint the Fed could buy more bonds, which means more cash freed up to grease the wheels of the economy. But it would be tough to lower interest rates much further.

Finance Professor Kevin Jacques is at Baldwin-Wallace College in Ohio.

Kevin Jacques: The difficulty is even if you drop interest rates to record low levels, that doesn’t necessarily mean consumers are going out and buying cars and purchasing new homes. That doesn’t necessarily mean businesses are investing in plants and equipment and machinery and expanding their production facilities.

Brancaccio: To keep this interest rates theme going, every week we check in with our partner at Gallup, something we call the attitude check. Joining me is Gallup’s editor-in-chief, Frank Newport. Greetings, Frank.

Frank Newport: Good morning.

Brancaccio: So, we have Chairman Bernanke on Capitol Hill today and the standard piece of economic theory is that lower interest rates mean that people are supposed to say “golly, with financing that cheap, I’m going to buy something,” maybe a house or expand a business. What do your researchers find when they ask Americans about interest rates?

Newport: Well you know what we found, and these are investors we’re talking to — this is part of our Wells Fargo Gallup Invest and Retirement Optimism Index that we do every month. We ask about the possible negative consequences of low interest rates as opposed to the positive ones and you know, we always have to be aware, I think that when you do something to fix Problem A, it could have Problem B, and we see some awareness of that.

We actually gave people a choice, and we had up to three out of ten investors who said the harm of interest rates — low interest rates — outweighs the benefit, particularly the harm being that it hurts retirement and investment income, and over six in ten said Bernanke et al should take into account the negative impact of low interest rates particularly on retirees when they keep them so low.

Brancaccio: You’re talking about one of the great divides in America because maybe you do what lower interest rates if you’re looking for a job because maybe the potential employer will have some money to borrow to be able to hire you but if you are an established person hoping that your investment income is going to keep them safe in retirement, you want higher interest rates. 

Newport: That’s absolutely right. We found a third of Americans say that they have delayed their retirement because of low interest rates, which is amazing. We found people, up to a third that have said that they’re taking riskier investments, that’s why you see so many gold advertisements now.

We see people who say they’ve given less to charity because of low interest rates; they put money into investments they might otherwise avoid. So we really see that a lot of Americans, particularly these investors are telling us that yeah, that’s great for the stimulus effect of low interest rates on the economy but boy, particularly if you’re older, it could have some really negative consequences.

Brancaccio: Frank Newport, editor-in-chief at Gallup. Thank you very much.

Newport: My pleasure.

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