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Karen Petrou is the author of Engine of Inequality:  The Fed and the Future of Wealth in America. Recently featured on NPR’s “On Point” program, banking insider Petrou maintained that the Federal Reserve is a powerful driver of inequality that has avoided real scrutiny. As it formally flexes its power on interest rates and inflation, it has hindered economic growth.

Or, as explained in a recent New York Times article, “Conventional wisdom has it that the lower a central bank sets interest rates, the faster the economy grows. But the longer rates stay ultra-low, it’s not the economy that grows – it’s inequality.”

Could – or should — that change?

Jeffrey Lacker, former president of the Federal Reserve Bank of Richmond and distinguished professor of economics at VCU School of Business, was asked to weigh in with his opinion. While agreeing with Petrou that it’s time for the Fed to step back from intervening in markets, Lacker feels skeptical about the Fed as a primary driver of inequality. Historically, he posits education and technology have been the primary drivers.

Petrou maintained, “In December the Fed pumped more liquidity into the markets than in 2008 during the financial crisis, but that has not fixed the economy. Markets are up 35% and millions of Americans are out of work, even though inflation is running rampant.”

Lacker countered, “The Fed is an independent agency. It is accountable to Congress for outcomes of monetary stability. It should not have a mandate for inequality.” Using an easily understood metaphor, he suggested that the Fed’s independence is like putting your credit card in the freezer. It might be of benefit in the short run, but is probably not in your long-term best interest.

So, concluded podcast narrator Megna Chakrabarti, “There are choices the Fed can make. But will it?” As long as there are economic heavyweights like Petrou and Lacker focused on the issue, at least there will be intelligent discussion.

Why the Federal Reserve is an ‘engine of inequality’
WBUR – On Point
Hear the NPR On Point podcast in its entirety.

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