The US Federal Reserve’s low-interest-rate policies have stabilized the economy and turbocharged the stock market. But those who don’t own lots of stocks haven’t benefited anywhere near as much as those who do.
Ever since the COVID-19 pandemic struck, the Federal Reserve has gotten plenty of kudos for moves that have helped stabilize the economy, kept house prices from tanking and supported the stock market. But those successes have obscured another effect: the inadvertent impact the Fed’s ultra-low interest rates and bond-buying sprees are having on economic inequality.
Longstanding inequality in the U.S. has been exacerbated by the Fed’s role in touching off a multi-trillion-dollar boom in stock markets — and stock ownership is heavily skewed toward the wealthiest Americans.
In contrast, soaring stock prices don’t help people like Wina Tan. Tan, 59, is one of the millions of Americans nearing retirement age whose greatest source of wealth isn’t stocks or equity in a home. Rather, it’s the Social Security checks she expects to start getting once she retires.
Tan, precariously perched on the lowest rung of America’s working class, earns about $25,000 a year as a job coach for adults with special needs near Irvine, California. She’s a single mom and grandmother and can afford food, rent and healthcare only with the help of federal safety net programs.
Her savings account totals around $11,000, most of it from recent tax refunds and stimulus payments. She’s reluctant to risk that money in stocks, so the bull market will probably continue to charge past her. Meanwhile, thanks to the Fed’s near-zero interest rates, the best rate her credit union could offer was 0.5% for a long-term certificate of deposit. That would mean earning less than $60 a year on her savings while tying the money up for five years.
Tan’s situation is far from unique. Social Security is the top source of wealth for most lower-income households with workers nearing retirement, according to Teresa Ghilarducci, an economist at The New School in New York City who specializes in retirement. If the guaranteed income stream of Social Security is treated as an asset, she estimates it amounts to 58% of the net worth for near-retirees in the bottom half of the U.S. wealth distribution. Other retirement savings represent only about 11% of their net worth, and stocks are just 1%. (Home equity accounts for most of the remainder.)
Large swaths of Americans like Tan have essentially missed out on any direct wealth increase from the market’s near doubling since its bottom 13 months ago. Rather, the major beneficiaries have been the wealthiest 10% of Americans, who owned 89% of stocks and mutual fund shares
held by U.S. households as of year-end, according to Fed statistics. More than half of that — 53% — is owned by the top 1%.
The Fed’s policies have helped generate jobs and reduce unemployment, which was their goal. In the process, however, the Fed has accelerated the decades-long increase in economic inequality by helping increase the wealth of people at the top far more than it has increased the wealth of working-class Americans…Continue Reading