The Federal Reserve's balance sheet has grown from under $1 trillion in 2000 to $6.75 trillion as of October 7, according to the Fed's own figures. A research report from The Prehn Institute examines where that new money went during two major expansionary periods: the asset purchases from 2008 to 2014 and the pandemic program from 2020 to 2022.
The report, titled "The Hidden Regressive Tax," was authored by Felix Nikolas Prehn, an economist and former investment banker. It was published in September 2026 and posted on Zenodo on September 25. The study finds that households owning shares and property benefited the most, while the bottom half of the wealth distribution captured little of the gains.
Bank reserves first, prices later
The first expansion ran from September 2008 to December 2014. The Fed purchased Treasury and mortgage-backed securities, paying with newly created bank reserves. Stock prices moved in tandem: the S&P 500 rose 77% during those years, while consumer prices increased only 8%. The paper highlights the timing gap—sellers of financial assets received the new money first, so asset prices moved before consumer prices.
The report outlines four transmission channels, including lower interest rates and easier borrowing against existing assets. Consumer prices responded later and more weakly, through demand, wages, and rents. As the paper states, "During the lag, asset owners have already gained, and non-owners have not yet lost."
Using the Fed's Distributional Financial Accounts, the report sorts households into four wealth groups. From Q4 2008 to Q4 2014, the average household in the top 1% gained approximately $6.5 million, while the average household in the bottom half gained about $3,700. The top 1% captured 37.3% of the total rise in household wealth during those years, compared to just 1.1% for the bottom half.
Direct payments to households
The pandemic program operated differently. It worked through the federal budget: Treasury debt financed spending, and the Fed bought most of that debt. Households received money directly this time, and the bottom half fared better. The paper credits direct fiscal transfers, a tight labor market, and a housing boom that reached the minority of bottom-half households who own homes. From Q1 2020 to Q2 2026, the average bottom-half household gained about $35,000.
The report reads both episodes as one pattern: in each, the S&P 500 rose by a multiple of the rise in consumer prices, and wages kept pace with prices without ever approaching the gains in assets. The per-household figures are approximate averages, not the experience of any one family.
Holdings of the bottom half
According to the paper's analysis of Fed accounts, two-thirds of a bottom-half household's assets sit in housing and durables like vehicles and appliances. They own few shares and owe a large part of what they own. When asset prices climb, they benefit mainly through the house, if they have one. Money saved for a first-home deposit chases rising house prices, while cash in the bank loses purchasing power as consumer prices catch up.
The paper calls the result a tax because it moves resources from one group of households to another without their consent. It labels the tax regressive because the transfer runs from households whose position is wages, cash, and rented housing to those holding shares and property.
Proposal for transparency
Prehn's paper suggests the Fed could make the transfer visible with data it already publishes. The wealth accounts come out quarterly, but no policy statement includes an estimate of what balance sheet decisions did to different groups' wealth. The paper proposes adding such an estimate, similar to how the Fed already reports on jobs and prices.
Since the balance sheet peaked in 2022, the Fed has allowed it to shrink, yet consumer prices kept rising—which the paper interprets as the earlier expansion reaching the shelves. Rent rose 30% from January 2021 to August 2026, slightly more than prices overall. Rents adjust slowly, so tenants were cushioned for a time, but the cushion was thin. A production worker's hourly earnings rose 29%, matching food prices but trailing rent.
This article is for informational purposes only and does not constitute financial advice.
