The Fed needs to adopt new tools, on its own and perhaps in cooperation with the other parts of the US government, to improve the economy from the bottom up. This includes increasing facilities for debt forgiveness for under-water mortgages and excessive student loans; increased credit facilities for small businesses and cooperatives; helping to underwrite mechanisms for creating affordable housing in cities; and more restrictive enforcement of financial regulatory rules to help rein in excessive banker risk and pay.
Gerald EpsteinHere's the interesting thing: the fact that QE and lowering interest rates almost to zero has worsened inequality, does not mean that raising interest rates will help reduce inequality.
Gerald EpsteinThe right wants to destroy the power of the Fed to increase the power of finance; and the progressives want to reorient the Fed so that it will stop protecting the interests of finance and protect the interests of the broader population instead.
Gerald EpsteinThe impact of QE on generating more lending by Wall Street to Main Street and in generating more employment and increasing overall investment in the economy is quite modest. QE probably limited the initial collapse of the economy in 2008, and likely had a very small positive impact on economic growth, but its broader impact on jobs and growth in the economy seems not very big.
Gerald EpsteinRaising interest rates might lead to some initial reductions in wealth by lowering asset prices, but it could also take a bite out of your paycheck and dampen your prospects of finding a job. It's a bit of damned if you do and damned if you don't.
Gerald EpsteinBankers themselves govern the Fed to some extent, and then there's the classic revolving door where Fed officials come from and then go back to the financial sector. Fed officials tend to believe that the institution should have a large measure of independence from democratic control, even though in law it is under the ostensible control of Congress.
Gerald Epstein