Merryn's Blog

The best way for the Federal Reserve to tackle wealth inequality in America

If Janet Yellen is serious about addressing income inequality in America, she should start with the taper, says Merryn Somerset Webb.

I'm a bit late to this, but having been away last week, I have only just got round to reading Janet Yellen's speech from last week on the matter of income and wealth inequalityin America.

She is "greatly concerned by it". She worries that it isn't compatible with American values. And she suspects that it is hitting the "equality of opportunity" that Americans mostly believe they have.*

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

This is fascinating stuff. That's first because inequality isn't considered any of Yellen's business. She doesn't actually recommend any policies for remedying the situation, but her preferences come over loud and clear.

That hits the wrong note for the simple reason that she is an unelected official with a clear mandate to deal with inflation and employment levels, not to influence or comment on social policies (which should surely be left to democratically elected members of government and the political process).

Advertisement - Article continues below

The second reason is that the Fed caused a good part of the wealth inequality currently present in the US, so hearing its leader lamenting its rise is distinctly odd.

The main effect of quantitative easing (QE) so far has been to push up asset prices in the US (which is why the stock market is near historic valuation highs).

Given that the rich hold more assets than the poor, it has clearly been a factor in rising wealth inequality. So, if Yellen is so worried about inequality and she feels it is somehow her job to do something about it, she has an easy way forward: accelerate the tapering and sell the Fed's bond holdings back into the market.

That won't make the rich happy, and I'm not entirely sure it will do much for the poor in the immediate either. But it will certainly reduce inequality. Job done.

* There is much talk in the US about falling social mobility and the end of the age of opportunity but it hasn't changed much in the last 50 years or so. Being born poor doesn't limit your path up the ladder any more today than it did then.




Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
US Economy

Apple’s coronavirus warning won’t be the last – but will markets care?

If one of the world's biggest companies is feeling the pain from the coronavirus, then presumably others are too, says John Stepek. That can only lead…
18 Feb 2020

Here’s why the Federal Reserve might print more money before 2020 is out

The Federal Reserve wants to allow US inflation to run “hot” for a while. But that’s just an excuse to keep interest rates low – and possibly print mo…
10 Feb 2020
US Economy

It’s still “inflation or bust” as far as the Fed is concerned

The latest interest-rate meeting of the US Federal Reserve has confirmed what markets already knew – central banks are pursuing "inflation or bust” po…
30 Jan 2020

Most Popular


A global coronavirus pandemic seems inevitable – are markets still too complacent?

Coronavirus is going global. It’s only a matter of time before it’s classed as a pandemic. John Stepek looks at the markets’ reaction, and explains ho…
24 Feb 2020

Gold is at its highest level in years – here’s how to invest

Gold's rise at a time when the dollar is unnervingly strong isn't unheard of – but it is curious. John Stepek explains what's going on, and what it me…
21 Feb 2020
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019