Don’t Blame Central Banks for Inequality, BIS Chief Says
Economic inequality isn’t caused by central banks, and government officials must play their part in tackling the fundamental reasons for the gap in income and wealth, according to the Bank for International Settlements.
“Inequality is not a monetary phenomenon over the long run,” BIS General Manager Agustin Carstens said in a speech at Princeton University on Thursday.
“Central banks are fully aware of the consequences of their actions on income and wealth distribution over shorter horizons,” but “they do not have the necessary tools to achieve targeted distributional outcomes on top of their mandated objectives.”
Policy makers in Europe and the U.S. have faced pressure to acknowledge the disparate impact of their ultra-expansive policies, with Federal Reserve Chair Jerome Powell saying earlier this week that the benefits of the U.S. economic recovery cut hard along lines of race and income.
With millions out of work and unrest flaring up across the U.S. over racial inequality, the Fed last year committed to a more inclusive approach when it updated its strategy.
For its part, European Central Bank, itself overhauling its approach, has called for further efforts to understand what the unequal distribution of income and wealth across meant for the transmission of its policies.
Yet Carstens rebutted the argument that central banks’ easy policy unduly helps the rich through higher real estate and equity prices, saying factors such as technology and globalization were behind widening inequality.
He also noted that runaway inflation acts as a tax on the poor, while financial sector instability caused by monetary policy that’s been too loose for too long could lead to a downturn and lasting scars for inequality.
“Delivering on central banks’ mandate of ensuring macroeconomic stability provides the best foundation for an equitable society,” Carstens said. Still, “keeping the economy on an even keel is not something monetary policy can do on its own.”
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