Karen Petrou Says Higher Rates ‘Should Be Resolutely Pursued’
In a new book, the banking consultant argues that the Fed is the ‘engine of inequality’
By Peter Coy
Banking consultant Karen Petrou is right that Federal Reserve policies have helped the rich. It’s not so clear, though, that reversing those policies would help the poor. The Fed’s marble headquarters appears under a foreboding sky on the cover of Petrou’s new book, Engine of Inequality: The Fed and the Future of Wealth in America. She repeatedly argues that the Fed has worsened inequality by pushing down interest rates. Here’s an early passage: As the Federal Reserve sucked trillions of safe assets from the financial system [by buying Treasuries and mortgage bonds], investors looked desperately for places to put their funds. Starved of Treasury obligations and even of the chance to earn a reasonable rate of return by putting money in the bank, investors had little choice but to head to the stock market or to high-risk assets promising returns above the Fed’s low rates. … If all Americans owned stock, then all Americans would benefit from rising markets, but all Americans don’t own stock; the bulk of household stock ownership—86.5 percent—was in the hands of the wealthiest 10 percent of households, and the top 1 percent owns more than half of all U.S. stock.