Fed Chair Yellen cites income gap among long-term risks

By Martin Crutsinger
AP Economics Writer

WASHINGTON (AP) - The U.S. economy is on solid ground now but it faces long-term risks posed by slow productivity growth and the widening income gap, Federal Reserve Chair Janet Yellen said last Thursday.

Speaking to a gathering of teachers, Yellen said that she sees no major short-term risks facing the economy. But sputtering productivity growth and growing income inequality are serious long-term concerns.

The Fed chair said that both challenges were outside the scope of the Federal Reserve to handle with its interest-rate tools, so it is important for other policymakers to address.

She cited a recent study that included a "very shocking finding" that death rates in the 45-to-54 age group were actually rising. She said there appeared to be a link between this increase and higher rates of suicide and health issues related to substance abuse.

"The thought is that this is a reflection of greater economic insecurity," Yellen said. "Obviously these are very disturbing trends."

To promote the study of economics, Yellen held a national town hall meeting last Thursday night with teachers gathered at the Fed's headquarters in Washington and in groups listening in at Fed regional banks around the country.

In prepared remarks, she said the study of economics not only can help students manage their personal finances but also provide them with the skills for analytical and critical thinking needed for success later in life.

"Economics provides knowledge and skills of practical use in college and in the workplace and it also provides skills to plan and make wise financial decisions," Yellen said.

Asked in the question period how an introductory course on money and finance should be designed, she said she would make a number of changes to how she taught such a course many years ago, incorporating the lessons learned in dealing with the 2008 financial crisis, the worst since the 1930s.

She defended the bolstering of the safety and soundness of the financial system brought on by the Dodd-Frank Act that Congress passed in 2010 to prevent a future crisis. Republicans in Congress and President-elect Donald Trump have said they want to roll back some of the changes to make regulation less burdensome.

In her remarks, Yellen said that economics training can play an important role in improving the capabilities and creativity of the workforce.

"Everyone is engaged in and depends on the economy and nothing is more critical to a healthy and growing economy than the capability, creativity and productiveness of its workforce," Yellen told the teachers. "Whenever I am asked what policies and initiatives could do the most to spur economic growth and raise living standards, improving education is at the top of my list."

Yellen said that consumers, whose individual spending decisions account for two-thirds of economic activity, can better weather hard times if they have the proper training.

"Stronger household finances overall can help sustain growth, stabilize the economy and mitigate an economic downturn," she said.

Yellen also put in a plug for what she called the most important teaching aid the Fed produces, a 182-page book called "The Federal Reserve System: Purposes and Functions." She urged the teachers to check out the new 10th edition of this book on the Fed's website.

Published: Mon, Jan 16, 2017