Regulation

Report: Quantitative-easing, similar programs cost older, wealthier households

McKinsey Global InstituteA recent report from the McKinsey Global Institute found that efforts by world central banks to keep interest rates near zero have benefited younger households but have caused older households with significant interest-bearing assets to incur losses.

In response to the global financial crisis, the Federal Reserve, along with several other central banks, took a number of unconventional measures to keep interest rates near zero.

The study found that European, U.S. and U.K. governments saved $1.6 trillion in borrowings costs between 2007 and 2012 as a result of central bank policies. Corporations saved $710 billion in borrowing costs, while households, primarily older, wealthier households, lost $630 billion income on bond holdings.

“Households headed by younger people (under age 45) are net debtors and have therefore benefited from lower interest rates,” the study said. “Household heads age 35 to 44, on average, have $1,700 more income to spend each year because of lower interest rates. Older households are generally net holders of interest-earning assets, and they have therefore lost net interest income. Household heads aged 75 and over lost an average of $2,700 a year in income. Across income percentiles in the United States, the richest 10 percent own about 90 percent of net financial assets. It is this group whose net interest income has fallen, while other income groups have seen minimal change.”

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