How Inequality Stymies Monetary Policy and What to Do About It

By Karen Petrou

  • In a dangerous double-whammy, monetary policy not only makes America even less economically equal, but economic inequality also frustrates monetary-policy transmission.
  • Thus, recessions are deeper and longer, reversing the good-times income gains central banks take as proof that their policies are not dis-equalizing even as the wealth divide grows ever wider.
  • Because monetary policy when rightly judged in terms of both income and wealth adversely affects economic equality and inequality stymies monetary policy, we won’t have macroeconomic-effective monetary policy until we have equality-focused monetary policy.
Continue reading “How Inequality Stymies Monetary Policy and What to Do About It”

Central Bankers Can Do More Than Just Care about Economic Inequality

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

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.
Continue reading “Big Fed or BigTech? The Force Behind U.S. Inequality”

The Family Financial Facility: Urgent, Overdue, Equitable Fed Support for Those Most in Need

By Karen Petrou

As I write this, thousands of small businesses are clamoring for urgent SBA loans and so many Americans are filing for unemployment insurance that systems have crumpled across the country.  At the same time, the S&P rose over three percent since Monday’s open.  The reason for this dissonance lies in the fact that key parts of the financial market have been bailed out while ordinary borrowers are stuck and then some.  Saving markets won’t salvage the economy – at its root, the U.S. is a consumption-driven economy.  If consumers can’t survive, neither will the economy.  The Fed must add a Family Financial Facility to all those it has crafted for the financial market and it should open one fast.  In this crisis, time is truly money and money is what most families don’t have.

Continue reading “The Family Financial Facility: Urgent, Overdue, Equitable Fed Support for Those Most in Need”

Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE

By Karen Petrou

Starting with our very first EconomicEquality blog post, we demonstrated the direct link between quantitative easing (QE) and the sharp rise in U.S. wealth inequality that differentiates this recovery from all that came before.  QE exacerbates inequality because, combined with post-crisis rules and ultra-low rates, it creates a market dynamic in which banks hold huge excess-reserve balances instead of making equality-essential loans and markets relentlessly chase yield, increasing equity valuations and driving credit to borrowers such as highly-leveraged companies.  In 2019, the Fed bulked up its portfolio in what is now known as QE-lite in hopes of rescuing the repo market, reinvigorating sputtering equity markets no matter the Fed’s ongoing insistence that this round of portfolio increases isn’t QE. Continue reading “Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE”