US Federal Reserve Chair Janet Yellen on Friday sounded an alarm about widening economic inequality in the US, saying that the US’ longstanding identity as a land of opportunity was at stake.
The growing gap between the rich and everyone else narrowed slightly during the Great Recession, but has since accelerated, Yellen said in a speech at a conference in Boston on economic opportunity.
Robust stock market returns during the recovery helped the wealthy outpace middle-class Americans in wages, employment and home prices.
“The extent and continuing increase in inequality in the United States greatly concerns me,” Yellen said. “By some estimates, income and wealth inequality are near their highest levels in the past hundred years.”
Yellen’s extensive comments on economic inequality marked an unusual public departure for a Fed chair.
Her predecessors as head of the US central bank tended to focus exclusively on the core Fed issues of interest rates, inflation and unemployment.
Indeed, the Fed’s mandate does not explicitly include issues such as income or wealth disparities.
However, since taking over from former Fed chair Ben Bernanke in February, Yellen has made clear she is deeply concerned about the financial challenges that ordinary workers and families face.
Throughout this year, she has stressed the need for the Fed to keep rates low to boost economic expansion and hiring.
She has said that the unemployment rate, now at 5.9 percent, does not fully reflect the health of the job market: Yellen has expressed concern, for example, about stagnant incomes, the number of part-time workers who want full-time jobs and the many people who have given up their job searches and are no longer counted as unemployed.
In her first speech as Fed chair, she highlighted the hurdles faced by three unemployed workers.
In congressional testimony in February, Yellen called income inequality “one of the most disturbing trends facing the nation.”
Her remarks on Friday, accompanied by extensive data compiled by her staff, expanded on her concerns.
Between 1989 and last year, the average income of the top 5 percent of households rose 38 percent, but for the remaining 95 percent of households, it grew less than 10 percent, Yellen said.
The widening gap in overall wealth is even more pronounced.
The average net worth of the bottom 50 percent of families — a group of about 62 million households — was US$11,000 last year, Yellen said.
Adjusted for inflation, that figure is 50 percent lower than in 1989.
By contrast, the average real net worth of families in the nation’s top 5 percent has jumped from US$3.6 million in 1989 to US$6.8 million last year, according to the Fed’s data — an 89 percent surge.
“I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity,” Yellen said.
Many analysts argue that widening income inequality is hurting economic growth itself.
The wealthy are receiving higher pay and rising investment earnings.
Yet those households tend to spend less of their money than do low and middle-income consumers who are dealing with sluggish wage growth.
As consumer spending accounts for roughly 70 percent of US economic activity, less spending tends to slow growth.
Yellen did not discuss the state of the economy, interest-rate policy or how her views might affect the Fed’s actions.
Nor did she address criticism that the Fed’s super-low rates have helped sustain the wealth gap by fueling stock gains and facilitating mortgage refinancings.
The affluent benefit disproportionately from stock price increases and home refinancings.
Instead, Yellen outlined four areas she described as “building blocks of opportunity” — early childhood education, affordable higher education, business ownership and inheritances.
“I do not mean to suggest that they account for all economic opportunity, but I do believe they are all significant sources opportunity for individuals and their families to improve their economic circumstances,” Yellen said.
The Fed is scheduled to next meet on Oct. 28 and 29.
Most economists do not think the Fed is going to start raising short-term rates before mid-next year.
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