Federal Reserve Chairwoman Janet L. Yellen raised alarms Friday about rising income inequality in the U.S., saying it “greatly” concerned her and suggesting the trend was incompatible with American values.
The last several decades “have seen the most sustained rise in inequality since the 19th century,” and by some estimates the gap in incomes and wealth is near its highest level of the last 100 years, Yellen said.
“The extent of and continuing increase in inequality in the United States greatly concern me,” Yellen told the Conference on Economic Opportunity and Inequality at the Federal Reserve Bank of Boston.
“I think it is appropriate to ask if 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 the speech.
Government policies can help reduce the gap through spending on social safety-net programs and education, which help increase economic mobility, she said.
But Yellen did not offer detailed policy recommendations, focusing instead on describing the extent of income inequality and the reasons for it.
She also did not address criticisms that the Fed’s unprecedented efforts to stimulate the economy since the Great Recession by keeping interest rates low have added to income inequality by fueling a stock market rise that benefits wealthier Americans more than average people.
Yellen did not comment in the speech about the recent volatility in financial markets, which has led to speculation the central bank might alter its plans to end its bond-buying stimulus program this month and further delay raising rock-bottom interest rates.
Yellen has expressed concerns about income inequality in the past and on Thursday visited the offices of a nonprofit group near Boston that helps low-income residents with affordable housing and other economic issues.
President Obama also has highlighted income inequality in pushing for an increase in the federal minimum wage, better access to education and other policy changes.
Some degree of income inequality is natural because of “variations in effort, skill and luck” and contributes to economic growth by providing incentives for people to “work hard, get an education, save, invest and undertake risk,” Yellen said Friday.
But income inequality in the U.S. has been widening more than in most advanced economies as economic mobility has stalled, she said.
Fed data show average income for the top 5% of households, adjusted for inflation, increased by 38% from 1989 to 2013, Yellen said. Average incomes for the rest of U.S. households grew less than 10% during the same period.
The Great Recession temporarily halted the trend as wealthier people lost more in the crash of the housing and stock markets and increased government spending on social safety-net programs helped offset some of the losses incurred by lower income households, Yellen said.
But as the economy has recovered, the income gap has widened as the stock market has rebounded, while growth in wages has been slow, she said.
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