The Ignored Consequences of the Fed's Interventions.

• Author: McKinley, Vern

Engine of Inequality: The Fed and the Future of Wealth in America

By Karen Petrou

288 pp.; Wiley, 2021

The Federal Reserve's massive interventions in response to the Great Recession led many to become great admirers of the institution. However, some financial industry observers had a very different reaction. A select few of them wrote hard-hitting books to explain to the public their policy criticisms of the Fed and to assess the direct and indirect consequences of its the adverse effects on income and wealth interventions. I have previously reviewed two of those books: Nomi Prins' Collusion ("Colluding with Central Banks, Not Russians," Fall 2018) and Danielle DiMartino Booth's Fed Up ("Black Hats and White Hats but No Clear Methodology," Summer 2017).

Karen Petrou's Engine of Inequality is a similar book, though it also examines Fed policy in response to the COVID crisis. It engages in a sharp, post-COVID critique of inequality of those broad-ranging interventions. Petrou is the co-founder and managing partner of Federal Financial Analytics, which has been a mainstay in banking and financial-sector consulting in Washington, D.C. since the 1980s. Engine of Inequality is her first book.

Getting right to the point/ Anyone who has followed the ups and downs of the financial sector and its fits of instability since 2007 remembers where things stood just over a decade ago. The financial authorities, with the Fed leading the way, had bailed out the big banks, arguing that they were simultaneously helping Main Street. In a widely watched 60 Minutes interview, then-Fed chairman Ben Bernanke walked around his hometown of Dillon, S.C. to dramatize the point. The financial authorities rallied behind the 2010 Dodd-Frank Act reforms, which in the words of President Barack Obama were going to put a stop to taxpayer bailouts once and for all.

In her introduction, Petrou starts fast and sets the scene well by summarizing the post-Great Recession environment and the ensuing COVID-19 recession. The Federal Reserve "proclaimed that all was right with the national economy and financial system," and the "Obama administration also congratulated itself on the sound economy and resilient financial system." Then the pandemic destroyed the confident narrative of the Fed and the Obama administration. In Petrou's words, "COVID blew away every one of the foundations on which the Fed thought the economy and financial system so securely rested."

Focus on inequality /...