The Federal Reserve's quantitative easing (QE) program, which it ended last October, has played a major role in increasing income inequality, says Paul Singer, CEO of hedge fund firm Elliott Management.
"Inequality is a function of the government's policies," he said at the World Economic Forum in Davos, Switzerland,
Fortune reports. "There is no question that QE is adding to it."
The idea is that QE has acted more to lift the stock and bond markets than the economy. And it's the wealthy who derive the bulk of the benefits when stocks and bonds rise.
The S&P 500 index hit a record high Dec. 29, and the 30-year Treasury yield touched a record low last week.
Star economist Nouriel Roubini of New York University took issue with Singer's conclusions. Unemployment would probably much higher without the Fed's easing, Roubini said, according to Fortune.
"QE may be helping the rich, but the alternative would be much, much worse for the middle and lower class," Roubini said.
Meanwhile, Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, says that while the economy might be in fine shape now, having grown an average of 4.8 percent in the second and third quarters, it's unclear how long the party will last.
"I worry about the downside because the downside will come," he said at the World Economic Forum,
CNBC reports.
Dalio has good reason to be concerned. Since 1950, the U.S. economy has suffered a recession every five years on average, though it's only every eight years since 1982. The last recession ended in 2009.
Dalio recommends that the Federal Reserve continue to exercise patience in scheduling its first interest rate increase, suggesting it wait until it "sees the whites of the eyes of inflation."
The personal consumption expenditures price index watched closely by the Fed rose only 1.2 percent in the 12 months through November.
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