Last week the Federal Reserve Board's Sarah Bloom Raskin
addressed the National Community Reinvestment Coalition
about employment options for moderate and low income working
Americans. Her talk was a reflection on the Federal Reserve's
decision to lower short-term interest rates, and the effect of the
stimulus on the economy and unemployment:
The Federal Reserve's primary monetary policy tool is its
ability to influence the level of interest rates. Federal Reserve
policymakers pushed short-term interest rates down nearly to zero
as the financial crisis spread and the recession worsened in 2007
and 2008. By late 2008, it was clear that still more policy
stimulus was necessary to turn the recession around. The Federal
Reserve could not push short-term interest rates down further, but
it could--and did--use the unconventional policy tools to bring
longer-term interest rates such as mortgage rates down further.
And yet, concedes Raskin, "while the Federal Reserve's monetary
policy tools can be effective in promoting stronger economic
recovery and job gains, they have little effect on the types of
jobs that are created, particularly over the longer term." Speaking
of types of jobs, Mark Spitznagel, a hedge fund founder and
contributor to The Wall Street Journal, argued
last year that the Fed's role in the recovery was to make the
rich richer:
The Fed doesn't expand the money supply by uniformly dropping
cash from helicopters over the hapless masses. Rather, it directs
capital transfers to the largest banks....
The Fed is transferring immense wealth from the middle class to
the most affluent, from the least privileged to the most
privileged. This coercive redistribution has been a far more
egregious source of disparity than the president's presumption of
tax unfairness (if there is anything unfair about approximately
half of a population paying zero income taxes) or deregulation.
While the Fed can alter short-term interest rates, print money,
and go on an indefinite bond-buying spree, all that does is
increase stock prices for the already wealthy.
Such actions leave moderate and low incomes unchanged while
decreasing the purchasing power of their income.
