Fed trapped in Catch-22 situation on inequality, rates

A paper published at Jackson Hole by the Kansas City Federal Reserve last week claimed rising income inequality over many decades was largely responsible for structurally lower interest rates because it channeled more money to richer households who typically save more. But if income disparities are indeed the main reason for the falling equilibrium interest rate – the rate that neither stimulates nor cools the economy at large – the Fed has an invidious choice.

ORLANDO, Fla, : The Fed can't win. Its only real route to fighting rising U.S. income inequality – blamed last week for trapping interest rates at ever lower levels – will only exacerbate more egregious wealth gaps.

A paper published at Jackson Hole by the Kansas City Federal Reserve last week claimed rising income inequality over many decades was largely responsible for structurally lower interest rates because it channeled more money to richer households who typically save more.