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What Is the Proper Role for Monetary Policy in Addressing Inequality?

C. Peter McColough Series on International Economics: Perspectives on Monetary Policy and Income Inequality

Speaker: James Bullard, President and Chief Executive Officer, Federal Reserve Bank of St. Louis
Presider: Matthew Winkler, Editor-in-Chief, Bloomberg News
June 26, 2014

Event Description

St. Louis Fed president James Bullard joins Matthew Winkler of Bloomberg News to discuss monetary policy and its effects on economic inequality. Bullard describes the life-cycle model of the economy and explains that a significant amount of income and wealth inequality is normal in an economy where the young and old are much less productive than those in their peak earning years. He advocates for policy interventions that recognize this fact and are targeted narrowly toward the excess inequality that cannot be evened out through functioning credit markets. Bullard also gives his thoughts on the state of the U.S. economic recovery and declares his support for a return to a more conventional monetary policy environment.

The C. Peter McColough Series on International Economics is presented by the Corporate Program and the Maurice R. Greenberg Center for Geoeconomic Studies.

Event Highlights

James Bullard on whether the Fed's unconventional monetary policy has contributed to wealth inequality:

"In my opinion, equity prices have indeed been influenced by quantitative easing. But I would stop short of saying that this has made wealth inequality worse. The relatively old are going to have to be the domestic holders of the capital stock of the U.S. and they will sell this ownership on to the next generation as they exit the economy. Ideally, when each generation is holding the capital stock, they do so at, quote, 'normal prices,' unquote, neither too high nor too low. But actual equity prices were well below normal by conventional valuation metrics in 2008 and 2009 and they have recently returned to more standard valuations. To me, this suggests that quantitative easing had no medium term implications for the U.S. income or wealth distribution. It's only as good or bad as it was before the crisis."

James Bullard on the U.S. economy's disappointing first-quarter performance:

"I think we did have a very bad winter, so that's one factor. But also, exports are a big factor. Inventory adjustment, which we knew was going to happen in the first quarter did in a big way. So, you kind of had this—and you've got this health care issue—how to measure health care. So, I think you've got several special factors in the first quarter that made that number come in very weak. But generally, I think the economy was pretty strong in the second half of 2013 and I think if we ignore the first quarter then going forward from the second quarter on out through the rest of the year and into 2015, I've got 3 percent growth; everyone seems to have 3 percent or better growth."

James Bullard on the economic recovery and the need to return to a more normal monetary policy environment:

"We've actually made a lot of progress; unemployment has come down a long way. We're not quite to where we need to be, but we're getting very close and it may not be very long before we're right on where we need to be. And inflation—we were wondering about inflation, but now that's moving up. So, we're going to be very close to where we need to be on inflation, too. So, we're going to be basically at goals. You look on the monetary policy side—we're still buying bonds. We haven't even ended the Q.E. program, much less started the process of slowly getting back to normal. So, that's why I'm turning a little more hawkish here."


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