51. Federal Reserve Anti-Inflation Policy: Wealth Protection for the 1%?
- Author:
- Aaron Medlin and Gerald Epstein
- Publication Date:
- 02-2023
- Content Type:
- Working Paper
- Institution:
- Political Economy Research Institute (PERI), University of Massachusetts Amherst
- Abstract:
- The Federal Reserve has a dual mandate from Congress that directs it to conduct monetary policy as such to achieve “maximum employment” and “stable prices.” Yet the U.S. central bank typically chooses to address inflation as a top priority and focuses on employment only secondarily, if at all. Why? In this paper we argue that an important reason is that the Federal Reserve conducts policy so as protect the real wealth of the top 1% of the wealth distribution. We focus on the Fed’s fight against inflation in 2021-2022, when it rapidly raised its policy interest rates by almost 4 percentage points in the face of more than 6 percent inflation. Using a novel econometric analysis, we provide evidence that shows that this policy serves as a real net wealth protection policy for the 1% by restoring some of the lost wealth that they would otherwise lose due to unexpected inflation. The results of this policy for the top 10% of the wealth distribution are econometrically ambiguous. But to the extent that the Fed’s high interest rates generate higher unemployment or even a recession, this wealth protection for the 1% could have serious income costs for workers who find themselves or another member of their household out of a job.
- Topic:
- Political Economy, Monetary Policy, Inflation, Elites, and Wealth
- Political Geography:
- North America and United States of America