Economists who have long worried about America’s growing inequality may have new cause for concern: the problem could stymie the Federal Reserve’s capacity to fight recessions.
Research published Monday shows that prolonged inequality may cause households to fret about income security and boost their savings. That in turn could push down the so-called neutral interest rate that allows the central bank to maintain full employment without fanning inflation, according to the paper by Stanford University’s Adrien Auclert and Matthew Rognlie of Northwestern University.
The authors argue that inequality could be partially behind the decline in interest rates since the 1980s, as well as the Fed’s decision to cut borrowing costs close to zero after the 2008 financial crisis. The research was funded in part by the Washington Center for Equitable Growth, which focuses on the impact of income inequality.
All that may give policy makers even more reason to focus on inequality, as a lower neutral interest rate gives central bankers less room to cut borrowing costs in a downturn.
Source: Bloomberg Pro Terminal
Jr Trader Alexander Kumanov
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.