The impact of quantitative easing on income inequality in the United States

Abstract

A controversy over the distributional impact of Federal Reserve monetary policy has erupted. Some politicians, pundits and even former central bankers have argued that, since the Great Financial Crisis (GFC) struck in 2008, the Federal Reserve’s near-zero interest rate policy and rounds of “unconventional†monetary policy have contributed to an increase in income and wealth inequality in the United States by promoting large increases in asset prices, and driving down returns to middle class savers with “money in the bank†(Brookings Institution, 2015). On the other side, former Federal Reserve Chairs Ben Bernanke, Janet Yellen, and others have argued that Fed policy has been broadly supportive of those at the bottom and in the middle of the income distribution, largely because policy placed a floor under the economic collapse, and, since then, has promoted economic recovery, employment creation, and economic growth (Appelbaum, 2015; Bernanke, 2015). This discussion is not just of historical interest: it interjects considerations of inequality into the very lively debate over whether the Federal Reserve should raise interest rates, and if so, by how much.