Baby Boomers Blunt Fed Strategy

Photograph by Gail Albert Halaban/Gallery Stock

People like seventy-two-year-old John Rodwick are adding to the Federal Reserve’s worries.

Rodwick, a retired professor from Colorado, cuts corners and watches every penny he spends.

“My wife and I love to travel, so that is our one big  expense, but we are very, very conservative,” he says.

After the value of their home plunged 30 percent in six years, Rodwick says he has become “very cost conscious.”

Cutbacks by retirees like the Rodwicks may blunt the impact of the Fed’s record monetary easing, which is aimed at creating  jobs. Older people are more likely to forgo purchases of houses, cars and other big-ticket items that the Fed is trying to encourage with low interest rates.

“Spending decisions of the older age cohorts are less likely to be easily stimulated by monetary policy,” William C. Dudley, president of the Federal Reserve Bank of New York, said in a speech on Oct. 15.

With the number of retirees growing, the Fed’s task is becoming harder. Each day, some 10,000 of the 78 million baby boomers — those born between 1946 and 1964 — turn 65.

As they near retirement, people usually start to save more.

Now the effect is magnified because Americans’ wealth has been depleted by the financial crisis. Retirees aren’t buying second homes or traveling like they used to.

“The practical has taken over the aspirational,” said Britt Beemer, chairman of America’s Research Group. “If you’re not moving from your home and not moving to a brand new home when you retire, all those furniture items you might have purchased are no longer on the shopping list.”

See the full report, written with Jeff Kearns, at Bloomberg.com. 


                    

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