The Fed and You

Congressional testimony from Federal Reserve Chair Janet Yellen mid-July signaled a shift away from the central bank’s primary stimulus policy, quantitative easing. Taking their word, let’s assume for a moment that the policy (central banks creating liquidity/money by buying securities like government bonds from banks with electronic cash to encourage banks to make new loans and buy new assets, such as equities) has been responsible for a significant chunk of the recovery in stock markets since 2009. Since the Great Recession, the major central banks have purchased some $14 trillion in assets in this way, massively swelling their balance sheets.
What will happen when the Federal Reserve “normalizes monetary policy,” slowly easing out of its stimulus program? If this “corporate Keynesianism” has worked in the stock markets, the boon to stock values have been largely captured by elites and top managers. Though many retirement accounts have recovered lost assets, the wages of ordinary workers continue to stagnate. But workers certainly have something to lose if in its termination it isn’t replaced with more bottom-up methods of injecting liquidity into the economy. One has to wonder if central banks tapering off their bond purchases and slowly raising interest rates will have a ripple effect on stock markets, lowering access to cheap credit for firms. If so, will shareholders and managers take the losses out of the hides of their workers?
 — Mike McCarthy, Milwaukee, WI

Arguing the Right