S&P claims quantitative easing is a programme for the many, not the few

Jake Cordell
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Janet Yellen has a lot on her plate at this week's Jackson Hole meeting
Janet Yellen has a lot on her plate at this week's Jackson Hole meeting (Source: Getty)

Standard and Poor's (S&P) has downplayed the role quantitative easing has in fuelling income inequality in a new report published to coincide with the annual central bankers' bash in Jackson Hole.

In an investigation into whether the US Federal Reserve should consider the impact its policies have on widening the gap between the richest and the poorest, the ratings agency concluded money-printing and bond-buying "will ultimately play out in a way that's beneficial to Americans across the income spectrum".

Quantitative easing, the bond-buying programme that the Fed embarked upon the aftermath of the crisis, and the Bank of England and European Central Bank are still indulging in, has long faced claims it widens disparity.

Through its effects on driving down the yield on government bonds, thereby raising demand for riskier assets such as equities and pushing their prices up, opponents argue quantitative easing lines the pockets of the haves - those who own stocks, shares and property - but not the have-nots.

Read more: Is a Fed shake-up on the cards at Jackson Hole?

S&P's US chief economist Beth Ann Bovino explained the process: "Given that monetary easing such as quantitative easing works by raising the price of assets such as stocks, it's hard to deny that Fed policy has been selective in the benefits it bestowed.

"Since more assets are held by the rich than by others, it can be argued that they reaped more rewards than others, thus increasing the concentration of wealth in the US."

She also conceded that the short-term effects of quantitative easing "likely helped those at the top more than others", but added: "The longer-term benefits have been more widespread."

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  1. Interest rates cut to 0.25 per cent - their lowest ever level in the Bank’s 322-year history
  2. Another £60bn of government bond purchases - taking the total stock to £435bn
  3. A new £10bn corporate-bond buying package, similar to the programme being undertaken by the European Central Bank (ECB)
  4. £100bn of cheap loans for banks to stimulate lending

Citing research that showed the bond-buying programme created an extra 1.9m jobs, S&P added: "The greatest benefits of the Fed's unconventional measures may be yet to come.

"After all, the effects of changes in monetary policy are rarely immediate. And, under the 'rising tide lifts all boats' rubric, we've seen a number of signs that Fed policy will ultimately play out in a way that's beneficial to Americans across the income spectrum."

While it dismissed the idea the Fed should be looking at factors such as income inequality when setting monetary policy, S&P did note that higher levels of inequality can limit the impact of monetary policy. Therefore, it said levels of wealth disparity should play a role in considerations and calculations about the likely impact of central bank policies.

Read more: How quantitative easing has hurt the economy

Fed chair Janet Yellen is set to address other innovative ideas for a Fed shake-up at this weekend's Jackson Hole meeting, including whether she should ditch, or tweak, the "dual mandate" which requires her to target both unemployment and inflation.

Some have suggested the bank should be aiming at a measure like nominal GDP, while the chair of the San Francisco Fed Stanley Fischer suggested raising the inflation target from two to four per cent.

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