On the Wall Street Journal’s editorial page, Sam Long and Alexander Synkov argue that by keeping interest rates low the Federal Reserve has been transferring money from middle-class savers to affluent stockholders. This view seems to me to overestimate how much power over interest rates central banks possess, and to underestimate the extent to which market conditions constrain their policies. The implicit assumption is that if the Fed had set its target interest rate to rise gradually to, say, 5 percent from 2012 to 2019, savers would have done better.

The authors ignore the possibility that Ben Bernanke is correct to think that the fundamental reason for low interest rates over the last decade is that the economy’s equilibrium interest rate is also low. (When we speak of the Fed’s “zero interest rate policy,” we are stealing a base whether we realize it or not.) They ignore, as well, the likelihood that attempting to raise the Fed’s target rate would have further depressed that equilibrium rate — leading to lower stock prices, yes, but also to slower economic growth, more frequent recessions, and ultimately even lower returns to savers. I think we have some good reasons for thinking that the Bernanke view is correct. For example, the Fed’s interest-rate hike in December 2018 caused market projections of future interest rates to fall, not rise.

The familiar idea that tighter money is always better for savers seems to me to be a mistake. But in any case it’s not something that can be simply assumed to be true.

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