The Long, National Nightmare for Savers Is Not Over

US-ECONOMY-FINANCE-CONGRESS-YELLEN (Credit: NICHOLAS KAMM—AFP/Getty Images)

The financial world has been waiting nine years for the Federal Reserve to raise interest rates, and now that day is finally almost here. But it has long been assumed that for no one has the wait been longer or harder than for savers. On Wednesday, the U.S. central bank's Federal Open Market Committee (FOMC) is expected to raise rates when it concludes its final meeting of the year. Futures traders are giving roughly 75% odds that the Fed raises its target overnight bank lending rate a quarter percentage point from essentially zero. Still, if 0.25% doesn't seems like a whole heck of a lot, you'd be right. Despite the fact that some politicians and market observers have been calling on the Fed to raise rates in order to help Americans who are living off the returns of their savings, the central bank's expected move tomorrow will not be a cure-all for America's savers. A recent survey of economists by the Blue Chip Economic Indicator predicted short term interest rates would only hit 1.25% by the end of 2016. The Fed itself is predicting that the Fed's interest rate in the long-run will settle at about 3.5%, or roughly half its average rate from 1970 through 2007. And there's a good shot that the Fed's rate doesn't even get that high. The Fed has consistently overestimated how high it may raise rates. A recent Wall Street Journal poll of sixty-five economists, for instance, showed that roughly half believe that the Fed will be forced by economic conditions to bring interest rates back down to zero within the next five years. But even if we take the Fed's projection at face value, there's little reason to expect banks to rush to raise what they are paying savers. Take five-year certificate of deposit rates. As Bankrate writer Mike Cetera has pointed out

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The richer portion of the over-60 age group—those ranking in the top 20% in wealth—get about half of their income from financial investments. But . . . even they are spared from low rates because they tend to invest more heavily in stocks—at nearly three-quarters of their financial investments—than cash-like investments . . . So if you’re a rich rentier living off your dividend income, your income really hasn’t been affected by low rates. In fact, Fed policy has probably helped boost stocks and dividends.