Since 2008, the Federal Reserve has also become a $7.4 trillion bank, soaking up safe assets in hopes of generating economic growth. Instead, we had the weakest economic recovery in recent memory and then the 2020 financial crash that made Covid’s economic cost still worse.

Post-crisis financial regulation hasn’t done equality any good. Banks are much safer due to lots of new rules, but these new rules cost them money and many responded by turning into wealth-management and investment-banking behemoths. The Fed’s models didn’t predict this, but banks follow the money, not the model.

As private-sector firms backed by short-tempered investors, banks had little choice but to revise their business strategies to reflect the earnings reality of a new regulatory construct. And when they exited key sectors, unregulated nonbanks stepped in. This kept the economy’s lights on, but the lack of regulation put vulnerable households at greater risk and laid the groundwork for 2020’s crash.

However, there are solutions readily at hand that would quickly make financial policy a force for equitable good.

First, the Fed must understand that the way it judges employment, price stability, and prosperity relies on aggregates and averages that obscure the reality for most American families. Relying on different data may seem like a pedestrian solution, but bad data means bad policy with unintended consequences. The Fed doesn’t want to make America less equal, but it did so in part because it mistook the mean for the median.

The reason that the Fed can’t quickly raise rates or reduce its huge portfolio underscores why it should: financial markets are now so dependent on the Fed — rather than economic fundamentals — that any monetary-policy change badly rattles the financial system. Forward guidance needs to alert financial markets to a gradual, measured shift to a more normal system in which the Federal Reserve supports the market instead of being the market.

How to change financial regulation? Deregulation isn’t right — all that means is renewed risk. Instead, we need regulation that is both even-handed and equitable.

Equality-focused financial policy must have new rules aimed expressly at enhancing economic equality and racial equity. This doesn’t mean risky loopholes or quotas — it means understanding the unintended, anti-equality impact of existing rules and removing them wherever possible.

How specifically to do so? I propose an array of options, among them plans for a new financial charter establishing institutions — I call them Equality Banks — under strict charters granting them regulatory flexibility as long as they act in a fiduciary capacity to provide real financial inclusion.

We also need new rules encouraging — not just de facto prohibiting — banks from making small-dollar mortgages, offering very short-term loans, and providing other essential financial products. Importantly, many lower-income families aren’t the deadbeats presumed by bank regulation and housing standards. Even-handed, equitable rules thus can enhance sound credit availability across the income and wealth spectrum.

There’s also a role for the federal government. Limited postal banking and even a central-bank digital currency may be of equal value, but only if we ensure data security and personal privacy — we don’t want to trade reliance on increasingly powerful giant financial and technology companies for a still more monolithic, uncompetitive government financial oligarchy.

Monetary and regulatory policy changes are already overdue. Even though the Fed said the U.S. economy was in a “good place” in 2019, almost 40 percent of Americans had less than a $400 cushion against financial catastrophe. The majority of Americans had more of a cushion, but only the top 10 percent could have managed day-to-day consumption and debt payments without trillions in federal assistance.

We won’t need such giant payments or such huge Fed financial facilities if, the next time the economy comes under severe stress — and there will be a next time — monetary policy promotes through-the-cycle stability and the majority of American households have savings and manageable debt burdens.

In short, we need to slow down the inequality engine, using financial-policy tools to put it into reverse. If we don’t change course quickly, then another crash is certain even as family financial insecurity and political polarization get worse.