Fed expresses serious concern about increasing economic inequality

Janet Yellen, chair of the Federal Reserve, has expressed serious concern about increasing economic inequality in the US and has said that the country needs to encourage entrepreneurship and improve early childhood education to reduce the gap.

In her speech at Federal Reserve Bank of Boston, Yellen pointed out that the surge in inequality over the past few decades is the most sustained rise since the 19th century. She said that living standards for the majority of Americans have remained “stagnant”, despite those at the top enjoying large gains in wealth and income.

In prepared remarks, Yellen said:

“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,”

The inequality problem is not a frequent topic of conversation at the Fed, given the bank’s lack of ability to really tackle the problem. However, Yellen said that there are four factors that can influence economic opportunity: investing in education for young children, making college more affordable, encouraging entrepreneurship and building inheritance.

The Fed has been subject to a lot of criticism for worsening the disparity in wealth issue, particularly as it promoted policies to help Wall Street quickly rebound from the financial crisis. In her prepared text Yellen did not elaborate on the Fed’s contribution to growing inequality and didn’t include anything about how the problem may be contributing to the country’s slow down in economic growth.

A Standard & Poor’s analysis said that inequality in the country is a “long-term drag,” with the agency downgrading its forecast for American economic growth over the next 10 years down to 2.5 percent, from 2.8 percent.

Christine Lagarde, International Monetary Fund Managing Director, said that global inequality has resulted in a “wasteland of discarded potential.”

Video – Income Inequality

This short Market Business News video explains, using simple terms, what income inequality is.