ADVANTAGES

Addressing inequality is not a direct object of the Fed’s monetary policy. Its objectives are, according to the Federal Reserve Act, maximum employment, stable prices, and moderate long-term interest rates. As reflected in these statutory objectives, monetary policy is commonly thought of at the macroeconomic level, responding to and affecting variables such as aggregate employment, inflation, and long-term interest rates. Nonetheless, in pursuing macroeconomic objectives, the tools used by the Fed have the potential to affect inequality. To the extent that household characteristics—like age, type of income, and portfolio composition—are correlated with income or wealth levels and interact with monetary policy changes, they create channels through which monetary policy may affect inequality.

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