Fed’s Brainard says income inequality may be hampering U.S. economy
MarketWatch - May 10, 2019
Rising inequality could be a factor behind sluggish growth in the U.S. economy in the wake of the financial crisis, said Federal Reserve Governor Lael Brainard on Friday.
Consumer spending remains the main engine of growth in the U.S., and data show that the recovery in consumer spending after the crisis has been slower than would have been expected given the recovery in aggregate household income and net worth, Brainard said, in a speech at a Fed conference on community development.
“Rising inequality is one plausible explanation” for this trend, she said.
Research shows households with lower levels of wealth spend a larger fraction of any income gains than households with higher levels of wealth, Brainard said.
“Consequently, an economy that delivers and increasing share of income gains to high-wealth households could result in less growth in consumer demand than one in which the gains are distributed more equally,” Brainard said.
“Long-term, the shifting of wealth and income to the top of the distribution and away from the middle could pose challenges to the health and resilience of our economy,” she said.
Overall, new data from the Fed show the continued squeeze on the U.S. middle class. One-third of middle-income adults said they would have to borrow money or sell something, to pay an unexpected $400 expense, Brainard said.
On the one hand, these households are experiencing slow growth in income and wealth. And on the other, they are seeing rising costs of housing, health care and education.
Stocks were set to open lower Friday as the U.S. increased its tariffs on China. The Dow Jones Industrial Average DJIA, -2.38% was down around 2.6% so far this week.