With three rate cuts this year, there remains “not as much scope as I would like to see for the Fed to be able to respond to that. So there is good reason to worry.” One particular area she cited was inequality, specifically the extent to which benefits during the longest expansion in U.S. history have flowed mostly to top earners and those with post-high school education levels. Despite the central bank’s efforts to guide the economy, Yellen cited “a very worrisome long-term [trend] in which you have a very substantial share of the U.S. workforce feeling like they’re not getting ahead. It’s true, they’re not getting ahead.”
“It’s a serious economic problem and social problem because it means the gains of our economic system are not being widely shared,” she added. “It leaves people ultimately with the feeling that the economy is not working for them, a sense of social discontent that is extremely disruptive.” The trade war initiated by President Donald Trump isn’t helping, she added.
For the past year and a half, the U.S. and China have been lobbing tariffs back and forth on billions in goods as part of the White House’s efforts to level the global playing field and halt the theft of technology and intellectual property. “I see no sign that that’s been successful in turning around these trends,” she said of the protectionist trade actions. “These tariffs are taxes on American consumers and businesses. It’s making it more difficult and more expensive to do business, to control costs, and consumers are seeing higher prices from it.”
The Yellen Fed held the near-zero short-term rates that came into play during and after the financial crisis. She oversaw just two rate increases and the beginning of a reduction in the bonds the Fed holds on its balance sheet, the product of stimulus efforts during and after the crisis. “Some of the most disturbing notes came from people who said, ’I work and I played by the rules and I save for retirement and I have money in the bank, and you know, I’m getting absolutely nothing,” Yellen recalled. “Savers are getting penalized. It’s true.”