The Fed — Yes, the Fed — Can Help Fix Inequality
The Federal Reserve is poised to better consider how its policies affect low-income Americans
Speaking before the House Financial Services Committee earlier this month, Federal Reserve Chair Jerome Powell acknowledged something radical about the state of the American economy: It’s only now, 10 years into the recovery from the Great Recession, that we’re entering a period that benefits the most vulnerable Americans, and that finally delivers wage gains to middle-income Americans.
“As you can see in your communities, the expansion is now reaching groups that are at the margins of the labor force,” Powell explained. “That’s because we’re pushing ahead and having a very long expansion with quite low unemployment, and that’s really benefiting these people at the margins.” In simpler terms, Americans who’ve historically had a hard time finding jobs — for example, people with criminal records — are finally getting better access to the labor force.
Implicit in Powell’s testimony is a crucial admission: The kind of economy that benefits these Americans looks very different from the kind of economy that benefits upper-income Americans. What Powell didn’t say, but which many believe to be true, is that by considering the economic well-being of low- and middle-income Americans, and acknowledging that much lower levels of unemployment must be attained for those workers to benefit, the Fed can play a role in fighting inequality.
While the notion that the Federal Reserve System should factor the economic experiences of demographic subgroups into its decision-making may not seem radical, it represents something of a meaningful departure from both traditional economic theory and the position historically adopted by most past Fed chairs. (One-time Fed Chair Janet Yellen once acknowledged during her tenure that monetary policy has implications for racial justice, a concession that arguably first set these wheels in motion. Likewise, Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, has argued that monetary policy can help address inequality.)
Like macroeconomics 101 textbooks everywhere, the Fed has long claimed it doesn’t have the institutional tools to reckon with the…