The financial world, in its own nervous way, continues to anxiously speculate on when rate hikes will materialize in the U.S.

Current “consensus” among Federal Reserve observers places the month of the first rate increase somewhere around June 2015. (Of course, that date is highly variable, even among voting members of the FOMC.)

Central banks raising interest rates would end the loosening cycle

Should the Federal Reserve actually raise interest rates sometime next year, it would be the end of the “loosening” cycle. An increase in the short-term interest rate (the rate the Fed directly controls) in June would mean that the loosening cycle that began on September 18, 2007 will have been the longest on record, at almost eight years.

Eight years is a long time for central bankers to keep interest rates low. In the current loosening cycle, in addition to keeping rates low for a very long time, actual rates have been historically low compared to previous loosening cycles.

Keeping interest rates so low for so long has its benefits and costs.

Some areas of the economy, notable investors in stock, have benefitted widely from the low interest rates.

Central banks: Savers at risk of loosing money

In contrast, major losers from the low interest rate policy have been and continue to be savers. Savers are individuals who put money in low risk savings accounts in an attempt to avoid any risk of losing their money.

Who are the savers? A large portion of the savers comprise young workers and the elderly.

By how much are savers losing out on because of historically low interest rates?

Before going further, the following has the background on the issue. The graphic takes a look at central bank interest rates by central bank since 1990.

The black line is a simple linear trend.

The green area is the period from 2009 to 2014. This is the period over which most central banks’ interest rates have floated in historically low levels, chief among the Federal Reserve and the European Central Bank.

1 Central Banks Policy Rates

With the trend as the background, lets move to the question at hand.

Central banks: How much have low interest rates hurt savers?

By how much have historically low interest rates adversely hurt savers?

In the next two graphics is the answer. (As a note: interest income statistics by country is not an exact science, so consider the numbers in the following two figures as rough estimates.)

The top graphic has the annual lost income savers have forgone from 2009 to 2014. The 2014 figure is $1.6 trillion, representing over 2% of global GDP.

The bottom has a look at the cumulative numbers. The cumulative figure comes out to about $7 trillion. The biggest losers from the low interest rates include savers in Europe ($1.5 trillion missing), the U.S. ($1.4 trillion missing), and China ($800 billion).

 Central Banks Missing Interest Income

Central Banks Cumulative Missing Interest Income

So, the administrators of the Federal Reserve, ECB, and other central banks think that the forgone $7 trillion in interest income is worth what has been helped by the historically low interest rates.

Central banks: Who was behind the historically low interest rates?

Who or what has been helped by the historically low interest rates?

According to central bankers, the economy. The mystical economy.

Are central bankers right that low interest rates have helped the economy?

The honest answer is – who knows. There is literally no evidence that low interest rates have boosted economic activity. In fact, correlation would point the opposite direction. The current recovery is the worst on record by most measures even though rates have been kept low for so long.

There is one group of individuals the historically low interest rates has certainly helped – owners of stocks.  One most likely has to argue that there was a stock wealth effect in order to justify the historically low central bank policy rates.

Overall, central bank supporters generally presume that low interest rates are helping the economy. Their presumption is just that – an assumption. It is not based in empirical evidence. In contrast, there is concrete evidence on the missing interest income of savers. Those adversely affected have missed out on about $7 trillion in interest income from 2009 to 2014.