OPINION: As central banks ratchet interest rates higher, there’s a growing focus on how rising income inequality is blunting the effectiveness of their monetary tools.
Their biggest concern will be in trying to assess the extent to which less affluent households are forced to tighten their belts – by reducing their spending on non-essential items – to keep up with their rising mortgage payments.
“Hence, an accommodative policy could provide short-term support to the economy at the price of heightened macroeconomic stability when the time to normalise monetary policy comes.” Even the most obtuse observer has been aware that the combination of record low rates and massive bond-buying programs has lifted asset values – from shares, bonds, real estate to cryptocurrency – disproportionately, boosting the wealth of asset owners, which tend to be more affluent households.
“Housing, for example, is widely distributed across the population in several countries, and wealth concentration may not change much – in fact, it may even decrease – as a result of policies that have an especially pronounced effect on house prices and which ease access to mortgage credit,” it says.
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