Fed’s Bostic Addresses Wealth Inequality, Inflation at New School Lecture

In an October 19 address at the New School’s 2023 Schwartz Lecture in New York City, Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, discussed how the Fed is addressing wealth inequality in the U.S. and how tackling inflation remains “Job 1.”

“People want us to tackle inflation,” Bostic said. “Across the economy and demographic groups, inflation is the force that is most painful and drives more people to precariousness.”

Bostic said while monetary policy cannot address persistent ills like wealth inequality, the Fed certainly plays a role in affecting change.   

“That role … is grounded in the reality that economic disparities limit opportunity for millions of Americans,” Bostic said. “Limitations for workers limit employment, which limits the economic prospects of businesses, which in turn constrains local, regional and national economies. Therefore, economic disparities are a concern and should be a concern of the Federal Reserve.”

Retirement Wealth Gap

The issue of wealth inequality extends into retirement, as disparities in retirement savings across socioeconomic class and race persist.

For example, the Government Accountability Office recently found that the median retirement account balance for households aged 51 to 64 for the highest income group in 2019 was $605,000, almost nine times higher than that of middle-income households, $64,300.

Teresa Ghilarducci, a labor economist and professor of economics at the New School for Social Research, noted that, since 1992, Social Security benefits have decreased significantly for people on the bottom 50% of the income spectrum. Ghilarducci said this is largely because in 1983, during the administration of President Ronald Reagan, Congress raised the retirement age, which meant a cut of 10% to 15% in Social Security benefits. Overall retirement savings and benefits have also suffered over the years for those in the lowest income group.

“We’re worse off than we were in 1992,” Ghilarducci said. “Because of credit card debt and student debt, the very bottom is still in debt after those years. The place where we think people accumulate [wealth] with their house and their retirement, it hasn’t performed.”

Ghilarducci said in a statement to PLANSPONSOR that because the Fed does not legislate, it ultimately cannot directly solve the retirement crisis as much as Congress, which can, for example increase the amount of money going to Social Security or pass the newly re-introduced , which aims to help low- and middle-income Americans build wealth and save for retirement.

“But the Fed’s excellent and unique research capabilities could sound the alarm—Fed district by Fed district—that 35 million middle class workers are at risk of becoming poor older adults in the next 10 years, crushing economic growth and consumer spending,” Ghilarducci said.

While monetary policy is the Fed’s “core duty,” Bostic said the Fed is also driven by its pursuit of “sustained maximum employment.” He defined this as fostering an environment in which anyone has the opportunity to not just find any job, but obtain gainful employment with the opportunity to reach their full potential.

“To achieve sustained maximum employment, we must foster an economy in which everyone can maximize their human capital and apply their talents to their highest and best to [help] families supporting incomes,” Bostic said. “We spend considerable energy trying to identify barriers to full labor market participation and work with partners in the relevant fields to try to help reduce or eliminate those barriers.”

Is the Fed Doing Enough?

In a panel discussion following Bostic’s remarks, Ghilarducci posed the question: “Given the weight on wealth inequality, is the Fed doing enough?”

Darrick Hamilton, founding director of the Institute on Race, Power and Political Economy at the New School, said the Fed is not doing enough and that the “normative perspective of price stability,” i.e., focusing on bringing inflation down to 2%, is overemphasized at the expense of ensuring there is greater inclusion in the economy.

However, Kate Bahn, research director of WorkRise at the Urban Institute, said it is “huge” that the Fed is recognizing that wealth inequality is bad for the economy.

“Inequality is not some incentive for people to work harder and to move up; it’s actually a constraint and a barrier to people being able to do that,” Bahn said.

She added that monetary policy can only be the foundation of addressing inequality and issues such as job quality and worker mobility, but the Fed has an opportunity to do more.

The panelists also discussed where their “first dollar would go” if they could address any economic issue today.

Tony James, co-founder of the Partnership for Education Advancement and the former president and executive vice chairman of Blackstone, said he would first fix the retirement crisis, which he said is a very “affordable and powerful thing to do.” James and Ghilarducci in 2020 co-authored the book “Rescuing Retirement,” which offered the solution to the retirement crisis of guaranteed and universal pensions for all Americans.

James also argued that there should be a federal program that encourages employers to furlough workers, rather than lay them off, because layoffs are typically destructive to savings and retirement.

Bahn said she would invest in worker power and emphasized the important role unions play in the economy.

“There is evidence that unions result in wealth-building power, particularly for workers from marginalized groups,” she said. “The ability for workers to exercise rights … [and] to be protected against retaliation through unions is huge. It changes the dynamics of how the economy functions.”