Tag: Fed Staff Paper

Central Bankers Can Do More Than Just Care about Economic Inequality

~ Karen Petrou ~ 2 Comments

By Karen Petrou

  • New evidence reinforces monetary policy’s distributional impact.
  • Monetary policy can also be redesigned to ensure that its distributional impact enhances equality instead of – as now – making it worse.
  • More evidence also reinforces the link between unequal monetary policy and slow growth.
Continue reading “Central Bankers Can Do More Than Just Care about Economic Inequality” →

Big Fed or BigTech? The Force Behind U.S. Inequality

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By Karen Petrou

  • An influential new Fed staff study asserts that increased market power is to blame for much of U.S. income inequality over the past forty years, discounting monetary policy’s impact after 2008 by looking only at inflation, not also at QE and ultra-low rates. 
  • Incorporating these factors into its construct and reviewing other research suggests a large causal role also for post-crisis monetary policy.
  • Which is worse is yet to be told, but it seems clear that market concentration, monetary policy-fueled asset-valuation hikes, and ultra-low rates exacerbate the structural factors on which the Fed continues to blame economic inequality.  Indeed, concentration and post-crisis policy are likely to be considerably more causal than the prolonged decline in educational quality, demographic shifts, increased innovation, and perhaps even regressive fiscal policy.
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Greenspan’s Market Put is Powell’s Inequality Short

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By Karen Petrou

On Friday, March 22, the Federal Reserve finally conceded that aggregates and averages mask all-important economic facts, issuing for the first time the “Distributional Financial Accounts of the United States” (DFA).  This will be a quarterly staff assessment of U.S. wealth equality – or, as its data forcefully demonstrate, the lack thereof.  However, the DFA does something more:  it also tracks wealth inequality across the business-cycle over almost three decades, showing clearly that equity-price increases exacerbate wealth inequality.  As a result, the more the Fed strengthens the stock market by keeping rates low and its portfolio huge, the worse U.S. wealth inequality grows.  Continue reading “Greenspan’s Market Put is Powell’s Inequality Short” →

How Equality Hangs in the Balance Sheet

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By Karen Shaw Petrou

As Thomas Piketty’s book and much other research show, economic equality is a cumulative-return construct – that is, absent engines of growth, the rich get richer and middle-income households fall ever farther behind.  Thus, when bank balance-sheet capacity shrinks and lending to core economic engines such as housing and small business falters, income distribution widens and wealth inequality grows inexorably worse.  Continue reading “How Equality Hangs in the Balance Sheet” →