What can the Fed do about income inequality?

Tim Fitzsimons Apr 2, 2015
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What can the Fed do about income inequality?

Tim Fitzsimons Apr 2, 2015
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Once upon a time, back when Laurence Meyer was a governor of the Federal Reserve, he was called to testify before Congress. Bernie Sanders, today a U.S. senator from Vermont, asked him what the Fed would do about income inequality. Meyer’s reply? “Nothing.”

That’s not because he thought it wasn’t a problem, but because of the Fed’s strictly defined mandate: “full employment and price stability,” Meyer said. “Anything else — not their job.”

But what the Fed can do is conduct research, and that’s just what Janet Yellen called for in a Thursday speech in Washington, D.C. Yellen called income inequality a “disturbing trend” and noted that family dynamics and related microeconomic factors could impact economic mobility and the broader economy.

A growing body of research suggests that lifelong economic productivity is affected by both family and early childhood development.

Randall Kroszner, an economics professor at the University of Chicago’s Booth School of Business, says, “I think we have much more data than we did before to drill down into the micro-factors that may be driving macroeconomics.”

Ted Peters, a former Fed director, said that Yellen’s star status means she can use the bully pulpit to rally politicians to take note of emerging economic trends that might affect the American economy.

“Janet Yellen publicly speaking out against this carries a lot of weight,” Peters says. 

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