Ultra-low interest rates combined with runaway inflation rip off middle-class savers and retirees, a former top economic advisor to Trump said.
“We know that people on pensions and we know that people with deposits at the bank, they’re not getting any return. They are being ripped off,” Judy Shelton said at a financial conference Tuesday.
The effective federal funds rate — which is managed by the Federal Reserve — stands at an anemic 0.08 percent per year. Meanwhile, 12-month inflation as of September was 5.4 percent, according to the federal Bureau of Labor Statistics.
Bank interest rates are lower than the federal funds rate; Chase bank, for instance, now offers just 0.01% per year on savings-account deposits.
That means dollars stashed away in a federally-insured account are actually losing value every year.
That just isn’t fair to Americans who would rather save than risk the stock market, Shelton said. “They’re doing what I consider, in a capitalist society, the right thing: being responsible, putting money aside,” the longtime Fed critic said.
“Let’s say, someone of modest means, putting money in the bank, and they don’t get a return on that money. I think that’s an immoral policy that feeds into the idea that the system is rigged in favor of the wealthy,” she told high-brow hedge-funders at the posh Plaza Hotel, who ponied up to attend the annual conference of financial sheet Grant’s Interest Rate Observer.
Shelton, who advised the Trump campaign, is known for her 1989 book, The Coming Soviet Crash. Later that year, the Berlin Wall fell; the dissolution of the USSR followed in 1991.
Shelton, who has advocated at least a partial-return to the gold standard, said low rates promote “making money by playing with money” rather than “real, productive economic growth.”
President Trump nominated her to the Fed — but after a testy Senate hearing, the body blocked her nomination in a close vote.
She noted that some 90 percent of Federal Reserve employee political contributions go to Democrats. “Personnel is policy, to some extent,” she said. “So, I think that’s worth knowing.”
Shelton also commented on the recent revelation that Fed Chairman Jerome Powell sold millions in stock in October 2020 — right before the market tanked.
Seasoned financial writer Jim Grant asked her whether that “scandal” might presage a change in Fed leadership.
“I see how damaging it is to see those kind of headlines in the press,” she answered. “I was surprised at the number of transactions that have now come out. […] I’m not judging, but I think that’s looking more damaging to people who are weighing the odds of may and may not.”
Days after she spoke, the Fed announced new restrictions on trading by senior officials, according to The Wall Street Journal.