Late last month, Ralph Nader wrote a rambling and somewhat offensive open letter to Federal Reserve Chairwoman Janet Yellen in which he chastised the Fed for allegedly hurting savers by keeping interest rates too low for too long, then suggested Yellen ask her husband, Nobel Prize–winning economist George Akerlof, for advice on how to do her job. Monday, in a slightly unexpected move, Yellen responded with a letter of her own. It doesn't mention the whole husband-knows-best flap. But it does very politely and efficiently demolish Nader's broader argument. Her point: Raising rates too soon would have tanked the damn economy, which would have been a whole lot worse for savers than the fact that their savings accounts aren't paying much interest today. Here's the heart of it:
It may help to review a few basic facts. In 2007 and 2008, the world faced the most severe financial crisis since the Great Depression. The unemployment rate in the ensuing economic downturn climbed to 10 percent in the United States. In response, the Federal Reserve acted forcefully—reducing short-term interest rtes to historically low levels. These lower borrowing costs for millions of American families and businesses helped support asset prices—including home prices and, as you note, stock prices. More importantly, by making consumer purchases more affordable and encouraging businesses to invest, low interest rates supported the economic recovery and the creation of millions of jobs. Indeed, the most recently reported unemployment rate, 5 percent, underscores the progress we have seen. Americans generally have benefitted, most particularly lower- and middle-income people affected disproportionately during the downturn.
Would savers have been better off if the Federal Reserve had not acted as forcefully as it did and had maintained a higher level of short-term interest rates, including rates paid to savers? I don’t believe so. Unemployment would have risen to even higher levels, home prices would have collapsed further, even more businesses and individuals would have faced bankruptcy and foreclosure, and the stock market would not have recovered. True, savers could have seen higher returns on their federally-insured deposits, but these return would hardly have offset the more dramatic declines they would have experienced in the value of their homes and retirement accounts. Many of these savers undoubtedly would have lost their jobs or pensions (or faced increased burdens from supporting unemployed grandchildren.)
So, why is Yellen taking time to respond to a man who hasn't been politically relevant for 15 years? This is purely speculation, but I don't really think Janet Yellen cares all that much about Ralph Nader. But the man's criticisms of the Fed just happen to closely mirror arguments made by some conservatives, who have made bashing the central bank a major economic theme of the GOP primary. So Nader's letter gives her an excuse to very pointedly respond in writing to their accusations without looking too overtly political.
Or maybe the the woman just really took umbrage at that husband line. And if so, who could blame her?