In Yellen’s speech, ‘Perspectives on Inequality and Opportunity,’ she points to ‘the high value Americans have traditionally placed on equality of opportunity.’ She also recognizes that ‘some variation in outcomes arguably contributes to economic growth because it creates incentives to work hard, get an education, save, invest and undertake risk.’ However, Yellen warns that ‘inequality of outcomes can exacerbate inequality of opportunity, thereby perpetuating a trend of increasing inequality.’
As the head of the world’s most powerful central bank, Yellen is silent about the Fed’s own role in increasing inequality by inflating returns for high-income households through ultra-low rates that have encouraged risk-taking and propped up asset prices, while discouraging saving and capital investment.
Today monetary policy has no rudder; there is no monetary rule to guide policymakers. We live in a world of pure fiat money and, in the case of the Fed, pure discretion. That environment breeds uncertainty and ignores the limits of monetary policy.