Yellen sounds alarm on inequality in America

The growing gap between the rich and everyone narrowed slightly during the Great Recession but has since accelerated, Yellen said in a speech at a Boston conference on economic opportunity.

Michael Dwyer/AP
Federal Reserve Chairman Janet Yellen speaks with staff during a visit to the office of CONNECT, a coalition of local organizations that provides employment services in Chelsea, Mass. Yellen said Friday that the last several decades have seen the most sustained rise in income inequality in a century.

Federal Reserve Chair Janet Yellen sounded an alarm Friday about widening economic inequality in the United States, suggesting that America's longstanding identity as a land of opportunity was at stake.

The growing gap between the rich and everyone narrowed slightly during the Great Recession but has since accelerated, Yellen said in a speech at a Boston conference on economic opportunity. Robust stock market returns during the recovery have helped the wealthy outpace gains in wages, employment and home prices for middle-class America.

"The extent and continuing increase in inequality in the United States greatly concerns me," Yellen said. "By some estimates, income and wealth inequality are near their highest levels in the past hundred years."

Yellen's extensive comments on economic inequality represented a departure from the central bank's past leaders, who focused on core Fed issues of interest rates, inflation and unemployment. Indeed, the Fed's mandate does not specifically include broad, complex issues like inequality.

But since taking over from Ben Bernanke in February, Yellen has chosen to emphasize more pocketbook issues that affect regular workers and families.

Throughout this year, Yellen has stressed the need for the Fed to keep interest rates low to boost economic expansion, bolster the labor market and promote stronger wage growth. In her first speech as Fed chair in Chicago, she highlighted the hurdles faced by three unemployed workers. And in congressional testimony in February, Yellen called income inequality "one of the most disturbing trends facing the nation."

Her remarks Friday, accompanied by extensive data compiled by her staff, expanded on her concerns.

The past few decades have given rise to "significant income and wealth gains for those at the very top and stagnant living standards for the majority," she 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," said Yellen, a labor economist and the Fed's first female head.

Yellen did not discuss the current state of the economy, monetary policy or how her views might affect future Fed actions.

Instead, she outlined four areas that she described as "building blocks of opportunity" — early childhood education, affordable higher education, business ownership and inheritances.

"In focusing on these four building blocks, I do not mean to suggest that they account for all economic opportunity, but I do believe they are all significant sources opportunity for individuals and their families to improve their economic circumstances," Yellen said.

On Thursday, Yellen visited a career center in Chelsea, Massachusetts to meet with people looking for work.

At the Chelsea center, Yellen listened to participants' personal stories on the job search difficulties they faced. Yellen has often argued this year that while unemployment has fallen, the labor market remains weak because of the high number of long-term unemployed and the millions working part-time when they would prefer full-time jobs.

The Fed will next meet on Oct. 28-29. The central bank is widely expected to wind up a monthly bond purchases program it has been pursuing to put downward pressure on long-term interest rates. But it is also expected to retain language that it plans to keep a key short-term rate at a record low for a "considerable time."

Many economists believe the Fed will not start raising short-term rates until the middle of next year.

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