From economist David Malpass’s statement to the House Financial Services Committee’s subcommittee on monetary policy and trade, May 17:
I think the Fed has been hurting growth and causing income inequality by misallocating capital to bond issuers. By constantly replenishing its giant long-maturity bond portfolio, it biases the credit system in favor of bond issuers at the expense of smaller borrowers, notably the small new businesses that are critical to U.S. dynamism. The Fed should change direction, including downsizing its balance sheet, reducing its $2.4 trillion in bank debt, reducing the interest rate it pays banks, and shortening the maturity of its $4.2 trillion bond portfolio. These steps would increase growth and income, especially for the middle class which has seen an unprecedented decline in real income during the recovery. . . .
Though I’m critical of Fed policy due to its negative impact on growth and median income, I want to make clear that I support the Fed as an institution. The problem is that Fed policies aren’t working. Its concept of its mission has grown way too large and is not sufficiently focused on maintaining a strong and stable dollar. It has created a huge balance sheet and regulatory apparatus that hurt growth, and it is allowing itself to house inappropriate executive branch functions such as the Consumer Financial Protection Bureau.