The Corner

Economy & Business

The Fed and Inequality

An email: “I’ve read some of your stuff on the Fed and I have a question. Are you at all concerned that it is stoking inequality by pumping up asset markets?”

Not very, no.

I think the main way that Fed policy has increased asset values is by raising expectations of future spending levels throughout the economy — that is, expectations of nominal spending and nominal income — which also boosts wages and employment. Those latter effects are particularly helpful to people with little income or wealth. A tighter policy would have kept stock owners from making the gains attendant on expectations of a healthier economy in the future, but the trade-off would have been not getting that healthier economy. So the increase in inequality seems to me to be worth it.

A few caveats though. First, I don’t care much about economic inequality per se. If households at the 20th and 50th percentiles of income are making progress, it doesn’t bother me that households at the 90th percentile are making even faster progress. Not everyone thinks this way. Second, if your view of the mechanism by which Fed policy has affected asset values and the economy is different, you may well reach different conclusions. If, for example, you think that the Fed has been holding interest rates below their natural levels for years and thus “artificially” boosting asset prices, the picture will look a lot worse. But I don’t think that’s correct.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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