Oct 13, 2020 - Economy

Jerome Powell's ironic legacy on economic inequality

Photo illustration of Jerome Powell wearing glasses with a reflection of an upward trend line and a downward trend line in his glasses.

Photo illustration: Aïda Amer/Axios. Photo: Drew Angerer/Getty Images

If there's anyone who should be talking about economic inequality it's Jerome Powell, a man who as Fed chair has aimed a spotlight on the issue and put the Fed on an intentional trajectory toward reducing it through policy.

Yes, but: Pressed for answers on how the central bank's policies have impacted wealth and income inequality among Americans during last week's virtual meeting with the National Association for Business Economics, Powell dodged and downplayed.

What we're hearing: Powell came off as "disingenuous," says Peter Atwater, an economics lecturer at William & Mary who first warned of a "K-shaped" recovery in June.

  • "You can't talk about the critical importance of asset prices and the wealth effect on one hand and then say that Fed actions didn't contribute to inequity."
  • "The Fed knowingly boosted asset values and the impact of that action disproportionately favors the wealthy."

Between the lines: "What he was basically saying was, 'The broad structural problem isn’t about monetary policy. Full stop.' He didn’t go to the next point, which is, 'Are you, given that structure, reinforcing [the problem]?'" Vincent Reinhart, a 20-year Fed staffer who is now chief economist at Mellon, tells Axios.

  • "That’s awkward to admit. It is not something you want to put in bold print on the Federal Reserve."

By the numbers: Employment is just 1% lower for U.S. top earners than its pre-pandemic levels, compared to nearly 20% lower for those making less than $20 an hour, according to analysis by economics professor John Friedman.

  • America's billionaires have seen their wealth rise by a combined $851 billion since March 18, largely due to the increase in equity prices.
  • Most Americans have missed out on the boom because more than 80% of stocks are held by the top 10% of U.S. households.

The big picture: While market participants view him as a hero, the widening wealth and income gap of 2020 will likely be Powell's legacy among most Americans — and it's the opposite of what he's worked for.

  • Powell spearheaded the Fed Listens event series that began in 2019 to welcome in Americans who previously had little or no interaction with the Fed.
  • He's described the turn to average inflation targeting as intended to help bring Americans back into the labor force who have historically been left out of recoveries.
  • And he has talked about lower-income Americans more than any other Fed chair in memory.

Under his leadership the Fed has leaned headfirst into previously verboten topics like racism and sexism as well, evidenced most recently by regional presidents Raphael Bostic, Neel Kashkari and Eric Rosengren presiding over the Minneapolis Fed's "Racism and the economy" event on Wednesday.

  • "This virus has really created a huge split in terms of experiences and many of the disparities that we've had before are actually getting worse," Bostic said during the event.
  • "And I actually think it's important that we do things to prevent that from happening."

The bottom line: Yet so far when challenged about what the Fed can do so that the next crisis does not result in a windfall for the wealthy and more pain for the poor, the Fed chair hasn't had much to say.

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