When Fed Chief Yellen Speaks on Income Inequality, the Markets Pay Close Attention

When Fed Chief Yellen Speaks on Income Inequality, the Markets Pay Close Attention
Federal Reserve Chairwoman Janet Yellen

Many studies point out the widening income inequality gap in the United States to little fanfare. But when the head of the U.S. Federal Reserve speaks out on this topic at length, the public and the financial markets tend to listen much more carefully.
Federal Reserve Chairwoman Janet Yellen addressed the “stagnant living standards” for most Americans at a conference Friday on economic opportunity and inequality sponsored by the Federal Reserve Bank of Boston.
“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” 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.”
Yellen briefly spoke of historical trends. The past several decades have seen the “most sustained rise” in inequality since the 19th century. This happened after more than 40 years of narrowing inequality following the Great Depression.
“By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then,” Yellen said.
Touching upon the housing market’s impact on inequality, Yellen said that recent gains in home prices haven’t “fully restored the housing wealth lost by the large majority of households for which it is their primary asset.”

The lower half of U.S. households ranked by wealth held just 1 percent of total wealth last year, down from 3 percent in 1989, Yellen said.
“Fortunately, rebounding housing prices in 2013 and 2014 have restored a good deal of the loss in housing wealth, with the largest gains for those toward the bottom,” Yellen said. “Based on rising home prices alone and not counting possible changes in mortgage debt or other factors, Federal Reserve staff estimate that between 2013 and mid-2014, average home equity rose 49 percent for the lowest half of families by wealth that own homes.”
Read the full text of her speech here.

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