During a Q&A at the Brookings Institution last week, former Fed Vice Chairman Donald Kohn asked new board member Jeremy Stein, formerly a Harvard professor, about the impression that the Fed’s quantitative easing was only helping wealthy people who benefit most from rising stocks.
“How do you deal with this sense that the effects of policy aren’t being equitably felt in all parts of society,” asked Kohn, who worked at the Fed for four decades before stepping down in 2010, and is now a Brookings Fellow.
Stein, who joined the Fed’s influential Washington-based board in May as a governor, suggested this was not an entirely fair accusation given the wide-ranging effects of the policy. Here’s how he explained it:
Monetary policy is a blunt tool, and certainly it’s a weak tool for working on income redistribution. The first order thing we can do for income-distribution type concerns is make progress on economic growth and unemployment. Obviously unemployment almost by definition is something that affects people at the lower end of the income distribution.
Implicit in your question is the absolutely correct premise that at the lower end of the wealth and income distribution there’s less stock ownership. Of course, there’s also more borrowing. If you look at the demographic data, people at the bottom of the wealth distribution tend to be net borrowers. So while they may be losing on the one hand by earning less interest on savings, they’re also paying less interest if they’ve been able to refinance their mortgage. And even with the difficulties in mortgage world, auto loans have become much cheaper, and small business loans.