P&I Says Time to Raise Rates
Pensions & Investments writes, "It's time for the Fed to raise interest rates." They comment, "The Federal Reserve's low-interest-rate policy must end. The policy helped the economy recover from the depths of the Great Recession, but the economy is now strong enough to withstand higher rates. While the low-interest-rate policy helped the wider economy recover, it harmed parts of it. Many observers have noted the impact of the low interest rates on savers, particularly those retirees who have much of their retirement savings in money market funds and bank savings accounts. Those retirees found their savings greatly reduced by daily living costs because of the ultralow interest paid on such accounts. Few have noted the impact of the low rates on defined benefit plans, and the companies and government entities that sponsor them. Low interest rates have greatly weakened pension plans and accelerated the trend away from them in the private sector. The decline in rates since 2007 has pushed unfunded liabilities up, and the strong stock market recovery since 2009 has not been enough to bring liabilities down, even though companies and many state and local governments have contributed billions to their plans." They add, "Companies also need cash reserves against unforeseen crises. It's not surprising that cash reserves have risen since the recession, when companies failed after they ran out of cash and no institution was willing to lend.... These pressures on pension plan sponsors, private and public, could be greatly eased by higher interest rates. The Fed should wait no longer to push rates up."
