America’s economy got a gut check Wednesday in about one sentence from Federal Reserve Chair Janet Yellen.
“We have seen a significant increase in the share of the pie, or GDP, that accrues to capital as opposed to labor,” Yellen said before Congress.
Translation: Corporate America is gaining a lot more from the economy’s recovery than average Americans.
Workers have hardly seen any wage growth while corporate profits and the stock market are at all-time highs. This is a two-sided recovery, making Congress question how the Fed will fix the gap in gains between Wall Street and Main Street.
“Too many Americans remain unemployed or underemployed, wage growth is still sluggish, and inflation remains well below our long-term objective,” Yellen said.
Time to raise rates? The Fed chair’s testimony before Congress comes at a critical time for America’s central bank: when will it raise rates? Some say June, others say September or later.
The stock market shot up with the Dow hitting a new record during her testimony as many on Wall Street interpreted her remarks as further indication that an interest rate increase won’t come until June or later.
Whenever it comes, a rate hike will likely have a major impact on everyone. The pros and cons of a rate hike were hotly contested Wednesday in front of the Senate Banking Committee, and it’s likely to happen again tomorrow when Yellen appears before the House.
Some Republicans argue that a rate hike is long overdue. Low interest rates mean savers see no gains from putting money in their bank accounts. Republican Senator Pat Toomey from Pennsylvania said Yellen’s “patient” approach to a rate hike is hurting Americans.
“[Americans’] reward is that they get nothing, zero, that’s what they earn on their savings,” Senator Toomey posed to Yellen. “I would urge you to consider the impact of savers losing their purchasing power.”
On the other side, Democrats asked Yellen to wait to lift interest rates until wages start rising. They point out that higher interest rates could hurt the potential for hiring and salary increases.
Sen. Chuck Schumer (D-NY) implored Yellen to be cautious.
“Wages growth needs to be a major factor…for the Fed when it’s deciding whether to raise rates,” Schumer said.
Congress’ conflicting message to the Fed shows how divided Americans’ are about the economy’s recovery. The country just had its best year of job growth since 1999, but wage workers aren’t seeing the recovery in their pay checks. Meanwhile, corporate America is raking in cash.