Janet L Yellen, the Federal Reserve chairwoman, used her bully pulpit on Friday to sound the alarm about rising economic inequality.
Yellen did not mention recent market turmoil or monetary policy during her 30-minute speech. Instead, she painted a bleak picture of the increasingly unequal distribution of wealth and income, warning that Americans already have relatively little chance to advance economically, and that the problem may be worsening.
"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," she said in her speech, which opened a conference on inequality at the Federal Reserve Bank of Boston.
Yellen, who took office in February, continues to put her stamp on the Fed by raising the profile of issues related to economic inequality.
Beyond the Fed's efforts to increase job growth through stimulative monetary policy, Yellen sees a role for the central bank as a source of research intended to provoke public debate.
Past Fed chiefs have also spoken about broader economic issues. Yellen's predecessor, Ben S Bernanke, devoted a speech to inequality in 2007. But Yellen's focus and her remarks still may be perceived as partisan, said Sarah Binder, a professor of political science at George Washington University.
Some Republicans in Congress argue the Fed's recent activism is harmful to the economy, and they are seeking to impose new legislative restraints.
"In today's highly partisan political environment, policy issues - and the politicians who talk about them - are inevitably perceived through partisan lenses," said Binder, who studies the central bank.
"I suppose that is the risk for Yellen speaking out on an issue that is more often framed as a Democratic issue."
But some audience members Friday welcomed what they saw as a change in tone.
"It shows you how she thinks of her role as Fed chair," said Nick Perna, an economist who heads Perna Associates, a consulting firm in Connecticut. "It's not only lip service to the dual mandate but an obligation to promote opportunity. And she's the first Fed chair that has really gone out of her way to emphasise it."
Yellen on Friday focused on four sources of economic opportunity: the means to raise children, access to education, owning a small business and inheritance.
She said recent Fed research showed the distribution of those opportunities to be increasingly unequal. For example, the share of wealth held by the lower half of households fell from 3 per cent in 1989 to 1 per cent in 2013, according to the Fed's triennial Survey of Consumer Finances, a survey of 6,000 households.
Government benefits and public programmes offset some of that inequality, but Yellen noted that public financing for early education had not increased since the recession, while the cost of higher education continues to rise.
"I fear the large and growing burden of paying for it may make it harder for many young people to take advantage of the opportunity higher education offers," she said.
Similarly, she noted that the decline in small business creation suggested that it had become harder for people to build wealth through entrepreneurial risks, threatening "what I believe likely has been a significant source of economic opportunity."
Inheritances were the somewhat surprising bright spot in her bleak picture. Yellen said that wealth gains from inheritances were less concentrated than overall wealth. Large numbers of less affluent families continued to receive windfalls. The average age for receiving an inheritance is 40, the Fed found, a stage of life when people are often assessing their ability to pay for children's education or to start a business.
Yellen noted that inequality could contribute to economic growth by serving as an incentive. But it can also make things worse, she said. She pointed to a relationship she described as the "Great Gatsby curve" - that in advanced economies with greater inequality, there is also less opportunity for intergenerational mobility. And mobility, she said, "is lower in the United States than in most other advanced countries."
Yellen offered few specific suggestions on addressing these problems.
She also did not discuss the view of some critics that the Fed's own policies are part of the problem. Before the recession, the Fed placed greater priority on reducing inflation than on reducing unemployment. More recently the Fed's stimulus campaign has raised the value of financial assets, which are primarily held by affluent households.
"Large-scale asset purchases seem to widen income inequality, although this is challenging to quantify," Yves Mersch, a member of the European Central Bank's executive board, said in a Friday speech that expressed a common view.
Fed officials have said any such impact is outweighed by the success of the stimulus program in creating new jobs, raising home values and increasing growth.
Yellen did not mention recent market turmoil or monetary policy during her 30-minute speech. Instead, she painted a bleak picture of the increasingly unequal distribution of wealth and income, warning that Americans already have relatively little chance to advance economically, and that the problem may be worsening.
"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," she said in her speech, which opened a conference on inequality at the Federal Reserve Bank of Boston.
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| TACKLING INEQUALITY Janet Yellen, chairwoman of the US Fed, painted a bleak picture on Friday of the increasingly unequal distribution of wealth and income, warning that Americans already have relatively little chance to advance economically, and that the problem may be worsening. Here’s what she said: |
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Yellen, who took office in February, continues to put her stamp on the Fed by raising the profile of issues related to economic inequality.
Beyond the Fed's efforts to increase job growth through stimulative monetary policy, Yellen sees a role for the central bank as a source of research intended to provoke public debate.
Past Fed chiefs have also spoken about broader economic issues. Yellen's predecessor, Ben S Bernanke, devoted a speech to inequality in 2007. But Yellen's focus and her remarks still may be perceived as partisan, said Sarah Binder, a professor of political science at George Washington University.
Some Republicans in Congress argue the Fed's recent activism is harmful to the economy, and they are seeking to impose new legislative restraints.
"In today's highly partisan political environment, policy issues - and the politicians who talk about them - are inevitably perceived through partisan lenses," said Binder, who studies the central bank.
"I suppose that is the risk for Yellen speaking out on an issue that is more often framed as a Democratic issue."
But some audience members Friday welcomed what they saw as a change in tone.
"It shows you how she thinks of her role as Fed chair," said Nick Perna, an economist who heads Perna Associates, a consulting firm in Connecticut. "It's not only lip service to the dual mandate but an obligation to promote opportunity. And she's the first Fed chair that has really gone out of her way to emphasise it."
Yellen on Friday focused on four sources of economic opportunity: the means to raise children, access to education, owning a small business and inheritance.
She said recent Fed research showed the distribution of those opportunities to be increasingly unequal. For example, the share of wealth held by the lower half of households fell from 3 per cent in 1989 to 1 per cent in 2013, according to the Fed's triennial Survey of Consumer Finances, a survey of 6,000 households.
Government benefits and public programmes offset some of that inequality, but Yellen noted that public financing for early education had not increased since the recession, while the cost of higher education continues to rise.
"I fear the large and growing burden of paying for it may make it harder for many young people to take advantage of the opportunity higher education offers," she said.
Similarly, she noted that the decline in small business creation suggested that it had become harder for people to build wealth through entrepreneurial risks, threatening "what I believe likely has been a significant source of economic opportunity."
Inheritances were the somewhat surprising bright spot in her bleak picture. Yellen said that wealth gains from inheritances were less concentrated than overall wealth. Large numbers of less affluent families continued to receive windfalls. The average age for receiving an inheritance is 40, the Fed found, a stage of life when people are often assessing their ability to pay for children's education or to start a business.
Yellen noted that inequality could contribute to economic growth by serving as an incentive. But it can also make things worse, she said. She pointed to a relationship she described as the "Great Gatsby curve" - that in advanced economies with greater inequality, there is also less opportunity for intergenerational mobility. And mobility, she said, "is lower in the United States than in most other advanced countries."
Yellen offered few specific suggestions on addressing these problems.
She also did not discuss the view of some critics that the Fed's own policies are part of the problem. Before the recession, the Fed placed greater priority on reducing inflation than on reducing unemployment. More recently the Fed's stimulus campaign has raised the value of financial assets, which are primarily held by affluent households.
"Large-scale asset purchases seem to widen income inequality, although this is challenging to quantify," Yves Mersch, a member of the European Central Bank's executive board, said in a Friday speech that expressed a common view.
Fed officials have said any such impact is outweighed by the success of the stimulus program in creating new jobs, raising home values and increasing growth.