While many economists and policymakers supported the Fed's decision to maintain the federal funds rate at a nearzero level for over six years, Charles Schwab, the founder and chairman of a discount brokerage firm that bears his name, argued that the economy was harmed by keeping interest rates low for an extended period of time:
U.S. households lost billions in interest income during the Fed's near-zero interest rate experiment. . . . Because they are often reliant on income from savings, seniors were hit the hardest. . . . Seniors make up 13% of the U.S. population and spend about $1.2 trillion annually. . . . This makes for a potent multiplier effect.
a. What type of spending was Schwab expecting would have increased if the Fed had raised interest rate earlier than it did?
b. Would higher interest rates have had an effect on other types of spending? Briefly explain.
c. Which of the types of spending that you discussed in answering parts (a) and (b) does the Fed appear to believe has the more "potent multiplier effect"? Briefly explain.