Are Financial Policies Making Economic Inequality Worse?
By John Heltman
WASHINGTON — The Federal Reserve’s accommodative monetary policy and post-crisis regulatory structure is having an unintended and counterproductive effect: it’s making it harder for ordinary Americans to get ahead. That argument, detailed in a paper released Monday by Federal Financial Analytics, analyzed academic research from across the globe — including from the Fed and the Switzerland-based Bank for International Settlements — to assess the impact of the prolonged ultralow interest rate environment on asset prices. The conclusion is that while those accommodative policies have spurred economic activity in some areas, it has primarily resulted in the growth of assets like equities and securities that are disproportionately held by the wealthy. Other assets — namely housing — have not recovered in the same fashion, and post-crisis regulations have created new and unintended barriers to homeownership that are keeping many low-income households from accumulating wealth. “It’s clear that the [Federal Reserve Board] does not want to make low- and moderate-income households poorer — quite the contrary,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. “But income inequality is nonetheless rising faster and more sharply than it otherwise would due to the FRB’s actions. As a result, careful attention needs quickly to be given to why the FRB’s ambitious effort to promote robust economic recovery is in fact only making the rich richer and the financial system still less stable.”