How Powell Went Wrong on the Fed’s Inequality Impact

On Wednesday, Rep. Ritchie Torres pressed Chairman Powell on several key points in my Monday New York Times opinion piece on the Fed’s unintended, but important, economic-inequality impact.  The chairman stoutly defended the Fed, at one point complaining that it could not be true that low rates increase wealth inequality because no low-income people have said so to the Fed.  This is new – the Fed has never before announced a crowd-sourced policy construct.  But, be that as it may, Mr. Powell’s other points deserve a serious, substantive reply.  In very short, it might be true that ultra-low rates enhance economic equality if they demonstrably improved income equality via gainful-employment increases large enough to offset growing wealth inequality resulting from the impact of negative real rates on small-dollar savings and broader financial dislocations.  Problem is, this didn’t happen from 2008 through 2021, long enough to tell.

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