Income inequality in the United States is near its highest levels of the past 100 years, Fed Chair Janet Yellen said on Friday.
Yellen, in remarks prepared for a speech Friday morning, said she was concerned about both the growing burden of student debt and the decline in new business formation, which she said could depress productivity.
“The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression,” she said. “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 conceded that rebounding home prices have restored some lost housing wealth, particularly for those at the bottom.
Yet at the same time, she said the wealthiest 5 percent still hold two-thirds of all assets, and that while there have been significant gains at the top of the spectrum, things have been stagnant for the majority.
“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.
She also cautioned that inequality in housing wealth enhanced inequality in education.
Yellen’s words come as the Fed prepares to exit the third leg of its monthly bond-buying program known as quantitative easing. The central bank had cut the program’s level to $15 billion a month, and is expected to shut it down completely when the Federal Open Market Committee meets Oct. 28-29.
However, the Fed likely will keep short-term interest rates anchored near zero, where they have been for nearly six years. Critics say the central bank has been too low for too long, and in fact has helped exacerbate inequality by providing liquidity that has largely helped stock prices zoom nearly 190 percent higher amid an otherwise slow economic recovery.
“Unfortunately, the past several decades of widening inequality has often involved stagnant or falling living standards for many families,” Yellen said.
Boston Fed President Eric Rosengren, in a CNBC interview Friday morning, defended the Fed’s actions and said its cheap-money policies and expansion of the central bank’s balance sheet to $4.5 trillion have helped families.
“All Americans are helped by a low unemployment rate. All Americans are helped by wages starting to go up a little bit faster than we’ve been seeing,” he said. “(Inequality of opportunity) reflects much larger trends than just monetary policy that tends to be quite cyclical.”
For the full Yellen speech, go here.