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Federal Reserve Anti-Inflation Policy: Wealth Protection for the 1%?

Fed Policy Protects the Rich

PERI researcher Gerald Epstein and Aaron Medlin argue that the Federal Reserve typically addresses inflation as its top priority and focuses on employment as only its second priority. A main factor is that the Fed conducts policy so as to protect the real wealth of the richest 1 percent of households. They provide evidence showing that, over 2021 – 2022, the Fed’s sharp interest rate increases restored some of the wealth that the top 1 percent would have otherwise lost due to unexpected inflation, even while this policy could raise unemployment and possibly cause a recession.

>> Research paper
>> Non-technical summary article

This paper was presented as part of the "Global Inflation Today" conference at PERI, December 2022. For the full set of conference papers and conference commentary, video, and interviews, click here.


The Federal Reserve has a dual mandate from Congress that directs it to conduct monetary policy as such to achieve “maximum employment” and “stable prices.” Yet the U.S. central bank typically chooses to address inflation as a top priority and focuses on employment only secondarily, if at all. Why? In this paper we argue that an important reason is that the Federal Reserve conducts policy so as protect the real wealth of the top 1% of the wealth distribution. We focus on the Fed’s fight against inflation in 2021-2022, when it rapidly raised its policy interest rates by almost 4 percentage points in the face of more than 6 percent inflation. Using a novel econometric analysis, we provide evidence that shows that this policy serves as a real net wealth protection policy for the 1% by restoring some of the lost wealth that they would otherwise lose due to unexpected inflation. The results of this policy for the top 10% of the wealth distribution are econometrically ambiguous. But to the extent that the Fed’s high interest rates generate higher unemployment or even a recession, this wealth protection for the 1% could have serious income costs for workers who find themselves or another member of their household out of a job.

>> Also read the authors' commentary "How the Federal Reserve Protects the Top 1 Percent," published as part of the American Prospect's "Great Inflation Myths" series.

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