Low Interest Rates Help Borrowers, but Hurt Savers
"One of the direct results of the Federal Reserve’s zero interest rate policies (red line above) has been a massive reduction in interest income going to households (blue line above). Since 2008, household interest income has fallen by about $400 billion annually (MP: From $1.4 trillion to $1 trillion). That’s $400 billion each year that families have not had to spend.
Now of course you can also argue that families' interest expenses have also fallen, and that would be true, but that just serves to illustrate that much of monetary policy is not about creating wealth, but re-distributing it. Since interest payments are one person's expense and another’s income, Fed driven changes in the interest rate should not increase household income in the aggregate."
MP: It's an important point: every credit transaction involves a borrower and a lender, or we could say the quantity of credit supplied by savers has to equal the quantity of credit demanded by borrowers. When expansionary monetary policy forces short-term interest rates to approach zero (or even negative like current TIPS yields), it's great for borrowers but bad for savers, but the overall net effect on the economy has to be zero. That is, low interest rates involve a transfer of wealth from net savers to net borrowers, but no net increase in wealth.
Conversely, when contractionary monetary policy raises short-term interest rates, it's great for savers but bad for borrowers and transfers wealth from net borrowers to net savers, with an overall net wealth effect of zero.
Bottom Line: We should stop pretending that monetary policy that lowers interest rates is good for the overall entire economy, and recognize that it's only good for 50% of the economy and bad for the other 50%. What is more important than low or high interest rates is stable interest rates, which is maybe a case for inflation targeting.