THE FEDERAL Reserve deserves credit for helping stem an epic financial panic in 2008 and, subsequently, mitigating the worst downturn since the Great Depression. To do this, the central bank necessarily resorted to new and unconventional methods — principally zero interest rates and the asset-purchasing program known as quantitative easing, or QE. The jury is still out, though, about the program’s full effects, intended and unintended, short-term and long-term. In particular, the Fed stands accused of exacerbating economic inequality. The argument is that quantitative easing boosts the price of financial assets, disproportionately benefiting holders of such assets — disproportionately the wealthy.
This claim seems indisputable, at least as a description of the practice’s immediate effects. Indeed, Fed officials from former chair Ben S. Bernanke on down said quantitative easing’s “wealth effect” would stimulate the broader economy because the owners of more valuable portfolios feel like spending more. Additionally, much of this extra wealth could remain in the upper reaches of the distributional hierarchy even after the program ends, permanently affecting wealth distribution, because the rich have more capacity to take on risk and better access to market information. Exponents of this view include Mr. Bernanke’s former Fed colleague Kevin Warsh and, in a paper published Thursday by the National Bureau of Economic Research, Nobel laureate Joseph Stiglitz.
The question is whether, and how much, other results of quantitative easing may offset this. Some of the first systematic studies of the asset-buying program’s distributional impact, presented Monday at a Brookings Intitution conference, sounded a relatively reassuring note.
An analysis by Josh Bivens of the Economic Policy Institute found that the Fed’s actions did indeed help shore up employment and, with it, workers’ ability to command higher wages — while the gain in stock prices attributable to quantitative easing may be lower than previously thought. Fed policy aided not only the value of stocks but also prices for houses, which are much more widely held, according to a second study by Matthias Doepke and Veronika Selezneva of Northwestern University and Martin Schneider of Stanford University. Indeed, they argued, middle-aged, middle-class households, which tend to have big mortgages, actually benefited at the expense of wealthy retirees.
The fact remains, though, that wage growth is sluggish even as the economy nears full employment, in stark contrast to the continued strength of the stock market and robust merger and acquisition activity. In his contribution to the debate Monday, Mr. Bernanke acknowledged that the Fed adopted QE with little regard for its effect on wealth or income inequality, partly because monetary policy is, by its nature, an unpredictable “blunt tool” and partly because the central bank’s legal mandate requires it to focus only on employment and prices.
Given the crisis, the Fed was right to make short-term economic stabilization its top priority, even ahead of fighting inequality. Certainly, too, the latter task involves more nuanced policy tools — involving everything from taxes to education — than the Fed possesses, as well as political judgments that are outside the Fed’s legal authority. It is, in short, primarily a job for Congress and the president. Central bankers can help, though, by systematically studying their policies’ effects on inequality and by forthrightly sharing that information with the public.