Americans are getting richer, helped by Federal Reserve pandemic policies

Photographer: Edwin Remsberg / VW Pics / Universal Images / Getty Images

Americans are by some measures richer during the pandemic than ever before.

It’s hard to fathom with the economic meltdown and the rise in the ranks of the unemployed, the homeless and the hungry. But there is a whole class of people – at least the top 20% of earners – who didn’t have to worry about such matters.

Not only was it relatively easy for them to perform their clerk duties from home. But the The Federal Reserve’s unprecedented contingency measures – including cutting benchmark rates to zero – have also filled their wallets. They have refinanced their mortgages at unprecedentedly low rates, bought second homes to escape the cities and watched the value of the stocks and bonds in their investment accounts rise.

Their enormous wealth accumulation largely clouds the toll felt by all those who do not enjoy the same easy access to credit or financial markets. The net worth of the household rose to a new record, hundreds of thousands of businesses are estimated to be permanently shut down, more than 10 million Americans remain unemployed, and nearly three times as many are going hungry at night.

Even if a new democratic government plans to seek trillions of dollars in additional spending to supplement last month’s Covid-19 aid package warn economists of the dire social and political ramifications of the dramatic widening gap between America’s haves and have-nots. With income inequality nearing its highest in at least half a century, the country’s response to the financial devastation from the coronavirus raises questions about who emergency measures were meant to help and who was left behind, they say.

“There has probably not been a better time to be rich in America than today,” said Peter Atwater, an adjunct professor at William & Mary who popularized the idea of ​​a ‘K-shaped’ recovery to the grim split in economic fortunes. to describe. “So much of what policymakers did was to enable the wealthiest to recover from the pandemic the fastest.”

In the past ten months, people with a higher income have had a relatively good life.

Employment for the The top quartile of workers – those who earn more than $ 60,000 a year – has already recovered from a year ago level, according to data from Opportunity Insights, an independent research institute at Harvard University.

And while lockdowns gripped the nation, millions of people, especially those at the top of America’s socioeconomic ladder, were able to divert money they would otherwise have spent on things like entertainment, food, and travel into savings. or, better yet, investments.

For many it has paid off. Thanks to the Fed’s efforts to support the economy, US stocks have rallied to record highs in the wake of the outbreak, while bonds rallied the most in more than a decade last year.

Prosperity gap

The top 20% of earners own nearly all of the shares of US households

Source: Federal Reserve

“If your wealth is secured by financial assets, you were back up and running in no time,” he said Amanda Fischer, policy director at the Washington Center for Equitable Growth. “It’s the people with the lowest income who don’t even have to file taxes, who have the highest threshold to climb.”

As their investment accounts exploded, wealthy Americans received one more gift.

Mortgage rates, driven largely by the same forces that drove stocks to dizzying heights, fell to the lowest officially.

Homeowners, especially those with impeccable credit scores, have benefited. Refinances have accelerated to the the fastest in nearly two decades, allowing millions of borrowers to cut their monthly payments, according to data from Fannie Mae.

Getting behind

For those on the other end of the spectrum, things are very different.

Employment for the bottom quartile of US earners – those who earn less than $ 27,000 a year – remains more than 20% below January 2020 levels. Last month, nearly 30 million adults lived in households where there was not enough to eat, according to the Household Pulse Survey from the US Census Bureau, up 28% since before the pandemic. In Louisiana, the hardest-hit state, one in five people now suffers from food scarcity, the survey found, with the numbers even worse among black Americans.

Uneven recovery

Employment for low-paid workers is still 21% below the pre-pandemic level

Source: Opportunity Insights Economic Tracker (https://tracktherecovery.org)

Millions are figuring out how to keep their homes instead of borrowing from them. According to the December Census Bureau survey, more than a third of American adults living in households that are behind on rent or mortgage payments will face eviction or foreclosure in the next two months.

With the introduction of the first Covid-19 vaccines sparking more optimism in the financial markets, many debt-grappling borrowers are finding it more difficult than ever to see a path to recovery, even after additional measures introduced by the Congress approved.

“Just people to feel that they are approaching or reaching rock bottom, ”said Bradford Botes, a director at Bond & Botes bankruptcy law firm in Birmingham, Alabama. “We hear a lot more hopelessness.”

Botes said that for many of the people who advised his company in Alabama, Tennessee, and Mississippi, government unemployment benefits and incentive checks have simply failed.

“That money was used by people to make ends meet,” he said. “The extra incentive wasn’t enough to make any difference to average Americans.”

‘Rusted plumbing’

To be clear, the tax packages that Washington has passed are among the largest the country has ever seen, and were largely aimed at the country’s most needy. In association with monetary stimulus, they have no doubt helped dozens of Americans stay employed and put food on the table.

Still, the growing economic inequality associated with these efforts, critics say, illustrates the limitations of the response.

By easing credit terms through the Fed, lawmakers were able to quickly support large corporations and wealthier individuals. But providing assistance to smaller businesses and low-income workers has proven to be a lot more challenging.

Delays in providing assistance and confusion about rules and eligibility criteria hindered many of those programs.

Read more: The Fed is waking up until race – within the new fight for equality

It is no coincidence, of course, that the machinery of monetary policy worked smoothly while its fiscal equivalent sputtered. It is used more often.

For about four decades, US governments have largely delegated business cycle management to an independent Fed – in line with the economic orthodoxy of the time, but now more control. Fiscal policy, better suited to regulating how the pie is distributed, fell out of fashion, except as a crisis tool. And in the same period, inequality was growing.

According to Fischer, the pandemic has shown how the infrastructure that the US government could use to reach everyday Americans is broken and in dire need of reform.

“Congress has gotten quite a bit of money from the people, but we haven’t been able to fix decades of corroded plumbing,” she said. “The fact that the Fed has the infrastructure to run a bond buyback program, but doesn’t do anything else, is a choice, not an inevitability.”

More help

Fed officials, for their part, have regularly recognized that monetary stimulus is far from a panacea and that the central bank has only limited tools to target specific economic outcomes.

“The Fed cannot allocate money to certain beneficiaries,” Fed Chairman Jerome Powell told reporters at a December 16 press conference. “Elected officials have the power to pay taxes and expenses and to make decisions about where we as a society should direct our collective resources.”

A spokesman for the central bank declined to comment further.

When it comes to fiscal policy, many economists argue that failure to respond to another major round of stimulus could slow economic recovery, just as vaccines are rolled out to the general public.

Millions of people will see their unemployment benefits expire in mid-March if measures approved by Congress in December are not extended. Meanwhile, states and local governments could be forced to further cut their already strained budgets to make up for losses in tax revenues.