How Low Rates Fuel Racial Inequity
As a New York Times op-ed today has it, ultra-low or even negative rates are just what’s needed to stoke growth and increase equality. The Fed in fact buys into this narrative, at least to a point. The problem with it is that an increasing body of evidence shows it ain’t so. Earlier this week, we assessed a new IMF study that, while not taking direct aim at the Fed, nonetheless shows clearly that the Fed’s new “make-up” policy will be at least as disequalizing as the ultra-accommodative policy that came before. The IMF’s paper is, like all too many, model-based and thus dependent on both the validity of the model and the soundness of the assumptions on which its theorizing is premised. However, its internal logic is persuasive and, lest there be any doubt of it, a new Federal Reserve Bank of Boston empirical study provides a chilling case study of precisely why things don’t always go the Fed’s own theoretical and model-driven way.
