Yesterday, Bernanke had another “the Fed did great” type post, “Monetary policy and inequality”:
Since the financial crisis the Federal Reserve has aggressively used monetary policy, including unconventional policies like quantitative easing, to promote job growth and keep inflation near the Fed’s 2 percent target. Progress has been made, even if it has been slower than we would have liked. Unemployment, which peaked at 10 percent in 2009, is now 5.4 percent and falling, and inflation appears gradually to be moving toward its target.
In this post I’ll look at another critique, that the Fed’s monetary policies have exacerbated inequality—a proposition that happens to be the subject of a June 1 symposium at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy.
Monetary policy is a blunt tool which certainly affects the distribution of income and wealth, although whether the net effect is to increase or reduce inequality is not clear. More research will be needed to untangle and measure the many channels through which these effects are transmitted. But the (uncertain) distributional impact of monetary policy should not prevent the Fed from pursuing its mandate to achieve maximum employment and price stability, thereby providing broad benefits to the economy. Other types of policies are better suited to addressing legitimate concerns about inequality.
The expansion of inequality since 1980 is a devil with many fathers. But it was not an inexorable fact of nature. It was the product of politics and policy and institutional arrangements that stripped US workers of bargaining power, and stripped US capital of tax obligations and ties to community. The Fed played a role in those arrangements, and not an unimportant role. Yes, post-crisis, post-TARP, in the context of a dysfunctional Congress, easy money has been the best available policy, even on distributional grounds. Yes, the Fed should continue to err on the side of monetary ease, despite the harm done by asset price inflation to social cohesion and to the information content of financial markets. If anything, the Fed’s policy ought to have been even easier, as it would have been under a wiser NGDP level target, for example.
But monetary policy prior to the crisis, and decisions made at the Fed during the event, are not remotely innocent of the catastrophic stratification we face today. Bernanke judges himself and his former institution too narrowly and too generously.