Show an ad over header. AMP

The mainstream finance world is turning on the Fed for exacerbating inequality

Big names in the world of finance are beginning to call out the Fed and other central banks for their role in ramping up economic inequality and manipulating financial markets — a departure from the praise they received for most of last year.

Why it matters: Wall Street was the only pillar of solid support. Most Americans say they don't trust the Fed and politicians look to be taking aim at the central bank for overreaching with its unprecedented actions in March.

Driving the news: Mohamed El-Erian, chief economic adviser at $2.8 trillion asset manager Allianz and the former chair of President Obama's Global Development Council, became the latest heavy hitter from the financial industry to issue a rebuke of central banks' policies.

What he's saying: "There is abundant evidence that the beneficial economic implications are low, and the costs include irresponsible risk-taking, higher inequality, distortion of financial markets such as negative interest rates and misallocation of resources," El-Erian told Switzerland's The Market.

  • "I don’t think central banks quite realize how much irresponsible risk-taking is going on," he added.
  • "In 2010, Ben Bernanke talked about the benefits, costs and risks that come with unconventional policy. He added, the longer you maintain it, the lower the benefits, the higher the costs and risks. This was ten years ago. At that time, Bernanke was thinking of unconventional policy as an economic bridge. Now, it has become a destination."

Zoom in: "We have stumbled into very unhealthy co-dependences; co-dependences between central banks and investors, between central banks and debt issuers which are governments and companies, and between central banks and politicians," El-Erian said.

  • "They are all in this unhealthy co-dependency. It’s like a bad marriage: They’ve ended up relying on each other, and they just don’t know how to get out of it."

Former FDIC chairwoman Sheila Bair was similarly unkind in her assessment of the Fed's actions in a Wall Street Journal editorial last week.

  • "Capitalism doesn’t work unless capital costs something and markets don’t work unless they’re allowed to rise and fall. The corporate facilities may have originally been justified as extraordinary one-off interventions to help companies maintain operations, but they morphed far beyond this purpose, and distorted capital allocation."
  • "The result was a windfall for investors, cheap credit for the uncreditworthy and record-shattering levels of corporate leverage."

Between the lines: Calls for change are even coming from inside the house. Fed presidents, including Atlanta's Raphael Bostic, Boston's Eric Rosengren, San Francisco's Mary Daly and Minneapolis' Neel Kashkari, have all spoken publicly about the Fed's role in worsening inequality.

  • Kashkari declared in a Financial Times article, “I don’t know what the best policy solution is, but I know we can’t just keep doing what we’ve been doing.”

Keep an eye on the yield curve

Data: U.S. Department of the Treasury; Chart: Andrew Witherspoon/Axios

"One of the most under covered stories is what’s happening to the U.S. yield curve," El-Erian warns.

What's happening: "It’s on a consistent move up, and that puts the Fed in a very difficult position, because if it allows the curve to continue to steepen, it can undermine financial stability," he tells The Market.

  • "If the Fed wants the yield curve to stop steeping, it has to implement yield curve control, or what they like to call yield curve targeting. But yield curve targeting is a huge step in policy."
  • "It would distort the U.S. Treasury market completely. So keep an eye on this, because this is starting to get to dangerous levels."

The big picture: Ultra-low Treasury yields are a major factor underpinning the runup in stocks. Experts have warned that the Fed's new stance encouraging inflation risks letting interest rates get out of control.

Where it stands: The difference between yields on 10-year Treasury notes and 2-year notes jumped to 1%, its highest since July 2017.

Collins helps contractor after pro-Susan PAC gets donation

A PAC backing Sen. Susan Collins in her high-stakes reelection campaign received $150,000 from an entity linked to the wife of a defense contractor whose firm Collins helped land a federal contract, new public records show.

Why it matters: The executive, Martin Kao of Honolulu, leaned heavily on his political connections to boost his business, federal prosecutors say in an ongoing criminal case against him. The donation linked to Kao was veiled until last week.

Keep reading... Show less

Cutting corporate cash could push GOP to embrace party's rightward fringe

Companies pulling back on political donations, particularly to members of Congress who voted against certifying President Biden's election win, could inadvertently push Republicans to embrace their party's rightward fringe.

Why it matters: Scores of corporate PACs have paused, scaled back or entirely abandoned their political giving programs. While designed to distance those companies from events that coincided with this month's deadly siege on the U.S. Capitol, research suggests the moves could actually empower the far-right.

Keep reading... Show less

Tim Kaine, Susan Collins pitch Senate colleagues on censuring Donald Trump

Sens. Tim Kaine and Susan Collins are privately pitching their colleagues on a bipartisan resolution censuring former President Trump, three sources familiar with the discussions tell Axios.

Why it matters: Senators are looking for a way to condemn Trump on-the-record as it becomes increasingly unlikely Democrats will obtain the 17 Republican votes needed to gain a conviction in his second impeachment.

Keep reading... Show less

Anthony Coley to lead Justice Department public affairs

Judge Merrick Garland, President Biden’s nominee for attorney general, has tapped Anthony Coley, an Obama-era Treasury Department official, to serve as a senior adviser and lead public affairs at the Department of Justice, according to people familiar with the matter.

Why it matters: As the public face of the DOJ, Coley will help explain — and defend — the department's actions, from sensitive cases to prosecutorial decisions, including the investigation into Hunter Biden.

Keep reading... Show less

AP: Justice Dept. rescinds "zero tolerance" policy

President Biden's acting Attorney General Monty Wilkinson issued a memo on Tuesday to revoke the Trump administration's "zero tolerance" immigration policy, which separated thousands of migrant children from their families at the U.S.-Mexico border, AP first reported.

Driving the news: A recent report by Justice Department Inspector General Michael Horowitz emphasized the internal chaos at the agency over the implementation of the policy, which resulted in 545 parents separated from their children as of October 2020.

Keep reading... Show less

Biden makes a down payment on racial equity with a series of executive orders

President Biden is making a down payment on racial equity in a series of executive orders dealing with everything from private prisons to housing discrimination, treatment of Asian Americans and relations with indigenous tribes.

The big picture: Police reform and voting rights legislation will take time to pass in Congress. But with the stroke of his pen, one week into the job Biden is taking steps within his power as he seeks to change the tone on racial justice from former President Trump.

Keep reading... Show less

Most Senate Republicans join Rand Paul effort to dismiss Trump's 2nd impeachment trial

Forty-five Senate Republicans, including Minority Leader Mitch McConnell, joined Sen. Rand Paul (R-Ky.) on Tuesday in an effort to dismiss former President Trump's second impeachment trial.

Why it matters: The vote serves as a precursor to how senators will approach next month's impeachment trial. The House impeached Trump for a second time for "incitement of insurrection" following events from Jan 6. when a pro-Trump mob stormed the Capitol.

Keep reading... Show less

Texas judge temporarily halts Biden's 100-day deportation freeze

A federal judge in Texas has temporarily blocked the Biden administration's 100-day freeze on deporting unauthorized immigrants.

Why it matters: Biden has set an ambitious immigration agenda, but could face pushback from the courts.

Keep reading... Show less



Get Goodhumans in your inbox

Most Read

More Stories