Jul 7, 2021 - Economy & Business

Central banks are speaking up on inequality

Data: BIS via Deutsche Bank; Chart: Axios Visuals

The world’s central banks are increasingly using their powerful platform to put a spotlight on inequality.

Why it matters: Central banks control the money supply and interest rates, which affects financing costs for everyone.

  • Historically, the Federal Reserve — the central bank of the U.S. — had vague goals including achieving some generic "maximum level of employment."
  • But last August, the Fed updated its statement on goals to clarify that this was "a broad-based and inclusive goal."
  • "This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities," Fed chair Jerome Powell said at the time.

The big picture: The Fed's now-broader mandate, which includes achieving inflation that averages 2% over time, gives it more flexibility to keep monetary policy accommodative for longer.

What they’re saying: Deutsche Bank strategist Jim Reid says "recent years have seen central banks increasingly enter the debate on numerous other topics including fiscal policy, social justice, race, gender issues, climate change and inequality."

  • "These are all admirable and crucial topics to discuss and could help make the world a better place. However, it does show how central bank power and influence has changed and also how they seem to be giving governments cover to spend on these issues."
  • Reid says this is a reason inflation could run a little hot for a while.

What to watch: In recent testimony to Congress, Powell emphasized how "joblessness continues to fall disproportionately on lower-wage workers in the service sector and on African Americans and Hispanics."

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