We characterize optimal policy rules in a business-cycle model with nominal rigidities and heterogeneous households. The policymaker has access to two instruments: the short-term nominal rate, and lump-sum transfer payments. A policymaker with a traditional dual mandate that targets aggregates uses the same policy rule as is optimal in the textbook New Keynesian model. We then consider a policymaker with a distributional objective. The optimal policy rule now contains an additional term, reflecting the effects of the policymaker’s instruments on consumption inequality. Since, in our model, monetary policy only has very limited distributional effects, this additional term does not materially change optimal monetary policy. Fiscal stimulus payments, on the other hand, have strongly progressive effects and are thus well-suited to cushion the distributional effects of cyclical fluctuations.