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Are Central Banks to Blame for Rising Inequality?

The view that central-bank interest-rate policy can and should be the main driving force behind greater income equality is stupefyingly naive, no matter how often it is stated. Central banks can do more to address the inequality problem, but they cannot do everything.

CAMBRIDGE – Judging by the number of times phrases such as “equitable growth” and “the distributional footprint of monetary policy” appear in central bankers’ speeches nowadays, it is clear that monetary policymakers are feeling the heat as concerns about the rise of inequality continue to grow. But is monetary policy to blame for this problem, and is it really the right tool for redistributing income?

Recently, a steady stream of commentaries has pointed to central-bank policy as a major driver of inequality. The logic, simply put, is that hyper-low interest rates have been relentlessly pushing up the prices of stocks, houses, fine art, yachts, and just about everything else. The well-off, and especially the ultra-rich, thus benefit disproportionately.

This argument may seem compelling at first glance. But on deeper reflection, it does not hold up.

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