By Pat Regnier
November 16, 2010

You hear a lot that the Federal Reserve is “punishing savers.” Here are just a few recent examples. (Full disclosure: It’s a point I’ve made in passing myself.)

And it makes sense — if you don’t take it too far.

The Fed’s low interest rate policy makes it hard to get a decent yield on a certificate of deposit or a Treasury note. And if the latest round of quantitative easing sparks higher inflation, those investments will be even less profitable.

This seems perverse to a lot of people. After all, it was too much borrowing by spendthrift consumers that got us into this economic mess, right? And now we’re punishing the people who actually saved? That’s crazy!

But let’s be careful about language here. When you hear the word “saver,” you probably think of a set of character traits: Hard-working, future minded, willing to put off today’s pleasure for tomorrow’s security. An ant, not a grasshopper.

But low rates and (potentially) higher inflation don’t hurt people who simply have a knack for saving. They hit people who have already accumulated a lot of savings. Not all those people are especially virtuous ants. And not all people with low savings are silly grasshoppers.

These aren’t just word games. How much you’ve saved is largely a function of your income and your age. George Grasshopper who saves only, say, 5% of his income over a lifetime will still have a nest egg big enough to worry over by the time he retires. But if 32-year-old Annie Ant saved 10% of her annual income, she’s still unlikely to have more than $75,000 in the bank. That’s nothing compared to what she stands to earn over her lifetime, so she shouldn’t worry much about lousy CD rates or moderately high levels of future inflation. (As Warren Buffett has said, the ability to work and earn is the best inflation hedge.) But she should worry a lot about whether the economy is moving fast enough to keep her employed; she can’t save if she can’t work. That’s the problem that the Fed’s second round of quantitative easing (a.k.a. “QE2”) is at least trying to deal with.

The Fed has a responsibility to work for Annie and George alike, to try to maintain both stable prices and decent economic growth. After all, we’re all workers, borrowers and retirees at different times in our lives. There are arguments on both sides about whether Ben Bernanke is choosing the best course for right now. But hollering only about “punishing savers,” when unemployment stands near 10%, puts an awful lot of focus on George’s problems and cuts Annie and her interests out of the picture.

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