Here's a simple question: Who benefitted most from all the extraordinary ways the Federal Reserve has used monetary policy to help get the American economy back on its feet?
Seth Klarman of Baupost Group in Boston would tell you it’s not necessarily your average working stiff. By stimulating the economy, central bankers also propelled the value of many investments owned by wealthy people through the roof.
Overall, he has unkind words for the Fed’s policy and points his finger at two people, in particular.
One is Fed chairwoman Janet Yellen. The other is Eric Rosengren, president of the Federal Reserve Bank of Boston. Rosengren has been a vocal supporter of the Fed’s aggressive easy-money policies since they were launched by Yellen’s predecessor, Ben Bernanke, several years ago.
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Klarman is probably the best-known hedge fund manager in Boston and a widely admired national figure on the subject of value investing. In his recent year-end letter to clients, as reported by Bloomberg News, he took aim at the Fed and the impact of its policies.
“How cynical it is for people like [Yellen and Rosengren] to decry growing economic inequality when it is their own policies that are exacerbating the gaps,” wrote Klarman, whose firm manages $28 billion. (Klarman could not be reached for comment on the Monday holiday.)
As you can imagine, Rosengren has a very different point of view. I’ll give him a chance to speak his mind shortly.
Those policies Klarman writes about cover a lot of ground, but most people focus on two particular Fed positions. One has kept short-term interest rates near zero percent for years. The other sought to keep longer-term rates low and inject huge amounts of money into the economy by buying bonds.
As a buyer of bonds, the Fed creates demand in financial markets that naturally push prices higher. As the central bank drives rates it can control to near zero, the value of other investments paying any amount of interest becomes more valuable.
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At its peak, the Fed was purchasing bonds at a rate of $1 trillion a year. It eventually curtailed that policy and stopped making new purchases last fall.
How does that really affect economic inequality?
I was struck by some numbers from the Economic Policy Institute, reported last week by the Globe’s Evan Horowitz.
Those figures tracked income growth in Massachusetts between 2009 and 2012, technically the start of the economic recovery and a period that was heavily influenced by Federal Reserve monetary policy. Among the wealthiest 1 percent of the population, income grew by nearly 47 percent over that period. Income actually shrunk by 1.5 percent for the rest of us.
Now, Klarman is no social activist. His year-end letter reflected the frustrations of a lifelong value investor, someone who looks for bargains to buy. He said that Baupost was regularly outbid for loan portfolios, real estate, and other assets — sometimes by 20 percent to 30 percent.
I doubt that Rosengren spends much time worrying about slim pickings for hedge fund managers, beyond what that might say about the overall condition of financial markets. But he certainly is focused on the economy and on the power of the Fed to affect people’s lives.
On Monday, I asked Rosengren who he considered the prime beneficiaries of the Fed’s policies. His answer: people with low to moderate incomes. Low interest rates helped reduce their debt burdens, made it easier for them to buy cars, and helped the housing business get up off its back.
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Most important, it helped people find work.
The evidence, he said, is in the nation’s jobless rate. US unemployment has fallen from 10 percent to 5.7 percent. Rosengren pointed to the relatively grim economic outlook in Europe, which only recently adopted Fed-style interventions, for an idea of what could have happened without aggressive Fed action.
“Through this period [of economic stimulus] we’ve seen a much faster decline in unemployment than economists expected,” he said.
Rosengren has established credentials when it comes to the wonky world of economic policy and the street-level struggles of working people. Earlier this month, he delivered a speech in Frankfurt, the heart of European resistance to easy-money policies, making the case for stimulating economies. He can be found just as easily in a city like Lawrence, trying to help government and business leaders solve local economic problems.
Rosengren doesn’t see a point to the income-inequality complaints about the Fed’s policies. But he is well aware of the threat of driving prices of anything — stocks, bonds, houses — too high and creating new problems.
He describes the Fed’s efforts to revive the economy as an unfinished story. It created the intended spark for a recovery. What remains is the task of raising rates back to normal levels and eventually withdrawing stimulus money without driving markets and the economy back into a hole. That’s a very big challenge.
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Everyone, from working people to the 1 percenters, has gotten a boost from the Fed’s monetary policies so far. But it’s the final chapters that matter most. We all have a lot riding on what happens next.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
Correction: An earlier version of this column misstated the US unemployment rate.