Winners And Losers From Ultra Low Interest Rates

Tim Taylor cites a study by McKinsey which attempts to sort out the winners and losers from Fed policies which are keeping interest rates well below normal levels.  The big winners are the US government which pays out a lot less interest on its debt, as well as non-financial corporations which have been able to borrow at lower cost.  The biggest losers are investors in the rest of the world of who have been receiving lower interest rates on the treasuries that they purchase.  Insurance companies and pension funds are also large holders of US debt which is yielding less than they need to be solvent.  If that continues they will have to invest in riskier assets in order to remain solvent.  (That may be one of the reasons for growth in private equity and hedge funds).

Fed policies have also kept mortgage rates low and that has helped to increase the value of real estate by 15%.  Large holders of real estate have seen their wealth increase as a result.  The Fed's policies have also helped the economy recover from recession.  Its hard to put a value on the macroeconomic effect of Fed policy but it has been very large.  The distribution of benefits from low interest rates are also age dependent.  Younger households have been able to borrow at low rates, but older aged households that borrow less, and are more dependent upon interest income, have done less well under low interest rate policies.