The New Politics of Central Banking: From Inflation to Inequality

Edited by Fatima Almutawa

In 2020, while millions lost their jobs during the pandemic, the world’s billionaires saw their wealth jump by over 38% (Bordeerath, 2025). The cause? Surging stock and housing prices, fuelled, in part, by central bank policies meant to ‘save’ the economy. For a long time, central banks were quiet players in the economy; raising interest rates when prices rose too high, and cutting them when things slowed down. They always claimed themselves as ‘apolitical’, their job was simply to keep inflation low and the economy steady. But can money ever truly be apolitical?

Critics argue that policies like ultra-low interest rates and quantitative easing (QE) have driven up stock markets and housing prices, enriching the wealthy while leaving everyone else behind. In other words, wealth has become increasingly concentrated at the top, and central bankers are being blamed. Now it’s no longer just about inflation. It’s about inequality.

Mark Carney, former Governor of the Bank of England, once called this criticism as a “massive blame-deflection exercise” (The Guardian, 2016). He argued that deep inequality comes from political and structural problems, not from monetary policy. But even Carney’s argument becomes difficult to defend when we look at the data showing that asset-purchase programs have clearly boosted the wealth of those already at the top.

It’s simple economics: when central banks flood markets with cheap money by cutting interest rates or buying bonds, the value of financial assets like stocks, bonds, and real estate tends to rise. In the short term, these policies can work – during the 2008 Global Financial Crisis, quantitative easing (QE) helped markets recover, kept borrowing costs low, and likely prevented a deep depression. The problem? Most of those assets are owned by the wealthiest households, meaning the benefits are far from evenly shared (Chang, 2022). A 2021 report by the International Monetary Fund shows that the top 10% of US families own around 70% of all financial assets. For this group, approximately 46% of their wealth is held in stocks and another 16% in bonds (IMF, 2021).

So, when QE boosts markets by even just 10%, that translates into huge capital gains. The IMF reports that, within a year of QE, stock wealth rose by about 7% for wealthy US households and 3% for Europeans. Meanwhile 60% of Americans, with little or no savings, gained almost nothing. In the end, rising markets mainly reward those who already own assets, while the gains for everyone else are much harder to see. And that’s where the fairness debate begins.

Even when studies show that the overall impact of QE on inequality is ‘negligible’, that’s often because the gap was already so wide to begin with. Across the four biggest eurozone economies – France, Germany, Italy, and Spain – the median wealth of the richest 20% of households is about €512,400. The poorest 20%? Around €1,100 (Lenza and Slacalek, 2018). That’s a gap of nearly 500 times between the top and bottom. So even when QE raises stock prices by 4%, it barely shows on inequality measures like the Gini coefficient. Why? Because most people’s main asset is their home, not shares. And since housing accounts for around 70-80% of household wealth, QE’s effect on overall inequality stays small on paper. The key problem is that QE increases asset prices much faster than it improves wages. When central banks flood markets with liquidity, investors see stock values soar within months, while wages often take years to catch up. For example, between 2010 and 2020, US stock prices rose by over 180%, but median wages grew by only about 30% (Acharya et al., 2023). This growing gap between asset values and incomes is one of the main ways monetary policy can deepen the wealth divide.

So, can central banks really stay ‘neutral’ when their decisions change who gains and who loses?

Politically, central banks have always prided themselves on being independent, free from government pressure. But, that independence is now being tested. When policies are seen to benefit Wall Street more than High Streets, the public starts to ask questions: who are central banks really serving? In developing economies such as Brazil and South Africa, inflation control competes with social inequality and debt burdens. Brazil’s interest rate reached 13.75% in 2023, taming inflation but making borrowing almost impossible for small businesses and workers (Acharya et al., 2023). Meanwhile, in richer countries, populist movements across the world, from Trumpism in the US to anti-EU sentiment in Europe, have been driven partly by the belief that the financial system is rigged for the few.

Today, it’s becoming clear that the old model of purely apolitical central banking no longer fits our world anymore. Economic decisions can’t be separated from social ones. When a policy affects who can afford a house or how much your student loan costs, it’s political, whether bankers admit it or not. This growing debate is forcing central banks to rethink their mission. For decades, economists relied on simple representative agent models that treated all households as essentially the same. Now, new models, called ‘Heterogeneous Agent’ models, acknowledge that people live very different financial lives (Hansen et al., 2020). These models recognise that rich and poor households respond differently to the same policy. Recent research (Carstens, 2021) even suggests that if central banks included inequality in their goals:

• The weight they put on controlling inflation might drop by about 17%.

• The focus on output and employment (helping the real economy) could rise by almost 80%.

Even the language of central bankers is changing. References to ‘inequality’ in official European Central Bank speeches were almost non-existent before 2006, but have sharply increased since then (Acharya et al., 2023). The shift in language makes it clear that central banking is no longer purely technical. It now touches on politics, fairness, and legitimacy.

The politics of money are changing. Central banks didn’t cause inequality, but they can’t ignore it anymore. Their decisions touch real lives, shaping who wins and who loses in our economies. All in all, the question now isn’t just whether central banks are keeping inflation low, but whether they’re helping to build a fairer economic future.

As Mark Carney put it, only politicians can fix deep structural divides. But as long as central bankers’ actions keep influencing who gets rich and who doesn’t, they’ll stay right in the middle of the political storm.

Bibliography:

Acharya, S., Challe, E., and Dogra, K. (2023). The Science of Monetary Policy Under Household Inequality. CEPR.

Bordeerath, Bordin (2025). “COVID-19 Pandemic and the Reconcentration of Wealth.” Economic Systems, p. 101326.

Carstens, Agustín, (2021). “Central Banks and Inequality,” Bank for International Settlements Speech.

Chang, Roberto (2022). “Should Central Banks Have an Inequality Objective?” NBER Working Paper 30667.

Hansen, Niels-Jakob H., et al., (2020). “Should Inequality Factor into Central Banks’ Decisions?” IMF.

International Monetary Fund, (2021). “Distributional Effects of Monetary Policy”.

Lenza, Michele and Slacalek, Jirka (2018). “How Does Monetary Policy Affect Income and Wealth Inequality?” ECB Working Paper 2190.

The Guardian, (2016). “Mark Carney: Political Attacks on Central Banks a ‘Deflection Exercise’,”.