Monetary policy can influence income inequality and wealth distribution through its effects on interest rates, asset prices, and economic activity.

Interest Rates

• Borrowing and Saving: Lower interest rates reduce borrowing costs, benefiting those with access to credit, often higher-income individuals and businesses. Meanwhile, savers, who are typically middle or lower-income, earn less on their savings.
• Debt Burden: Lower rates can reduce debt burdens, freeing up income for consumption or investment, primarily benefiting those who already have debt.

Asset Prices

• Stock Market and Real Estate: Expansionary monetary policy, like lowering interest rates, often boosts asset prices such as stocks and real estate. Wealthier individuals, who are more likely to own these assets, experience greater increases in wealth.

Economic Activity

• Employment and Wages: Lower interest rates can stimulate economic activity, potentially leading to job creation and wage increases. However, the benefits might not be evenly distributed, often favouring higher-skilled workers more.

Overall, while monetary policy can support economic growth, it can also exacerbate income and wealth inequality by disproportionately benefiting those with greater access to financial assets and credit.