Tuesday, June 2, 2015

Federal Reserve Policies And Income Inequality

The Fed has been accused of increasing income inequality by keeping interest rates low. Ben Bernanke admits that low interest rates have contributed to rising asset prices, like stocks, but he argues that monetary policy has not promoted income inequality.  The Fed's policies have been directed toward maintaining employment and price stability.  Income inequality would have been worse if unemployment had risen more than it has.  Preventing price deflation has also been good for borrowers and bad for creditors who tend to be wealthier. 

Bernanke argues that monetary policy is a blunt instrument that has diverse effects on income inequality.  Moreover, it is not part of the Fed's mandate to deal with income inequality. Fiscal policy, which is the responsibility of elected officials, is more appropriately directed toward the distribution of income and social mobility.  In fact, counterproductive fiscal policies have made it more difficult for the Fed to maintain employment stability.

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