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3 Ways the Fed Has Helped the Average Joe and Not Just the Rich


You may have seen the recent Wall Street Journal op-ed by former Fed official Andrew Huszar that said “We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.”

While these “Confessions of a Quantitative Easer” raised a lot of eyebrows and riled the masses on Main Street, the primary point of the piece is said to be inaccurate.

“That’s simply not true,” says Hugh Johnson, the CEO of Hugh Johnson Advisors in the attached video, adding that most people simply don’t understand what the Fed was doing or what its strategy was.

In fact, Johnson says while Wall Street’s benefits are clear and well documented, Main Street has benefitted in three keys ways itself.

1) Unstable Banks Don’t Lend

Johnson begins with a point of order by saying the overused colloquialism ”Wall Street” is not limited to investment banks, brokerage firms or even the stock market, but is really a reference to the entire commercial banking industry.

Related: Fed Has a Secret Third Mandate: Mauldin

That said, Johnson concedes that, yes, the Fed very much helped Wall Street  “and that was by design.”  Just as it was during the Savings and Loan crisis in 1990.

By restoring the financial strength and viability of banks, he says, the Fed’s early rescue efforts were “designed to kick-start lending,” which he points out has been rising for nearly three years now.

2) Stocks and Housing Prices Are Way Up

As the latest Case Shiller data show, average home prices rose 13.3% in the past year. This, at a time when the all the major stock indexes are cruising to news highs almost daily. Their combined consequence is what is known as “the wealth effect” and reflects a general sense of well-being for the average household.  

While some my try, few have successfully argued that the years of so-called “Q-E” by the Fed have not played a major role in reflating the stock market.

3) Low Rates Boost Borrowing, Ease Deleveraging

And finally, Johnson points out that throughout this entire recovery process one of the consistent headwinds stated for its slower-than-desired pace is the fact that consumers and households continue to deleverage or get out of debt.

“So the man in the street, if you will, has improved measurably,” Johnson says.

Related: Fed Stimulus Boosts Fortunes of Wall Street, Leaves Main Street Behind: Baker

By intervening directly in the bond market, the Fed has sought to, and succeeded at, keeping interest rates artificially low. The result is reduced borrowing costs for everyone.  A condition that actually crimps bank profits, but also one that has clearfly made it less expensive to pay down debts.   

The catch is that this era of low-cost lending won’t last forever, and the resulting turmoil is higher interest rates is very difficult to predict.

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