The turmoil over the rollout of the new health care law and the higher premiums many are paying has dominated the domestic news lately. But there’s another change about to occur that could also impact your pocketbook, and I don’t believe it’s getting enough coverage.
Ben Bernanke, our nation’s Federal Reserve Chairman, will soon step
aside and be replaced by Janet Yellen, the first-ever woman to hold the
Congress created the Federal Reserve in 1913. But in 1977, Congress
amended the Federal Reserve Act and established what is known as the
dual mandate, which tasks the Fed to maintain price stability and full
Most experts agree that Chairperson Yellen will continue the policies
of her predecessor, which means we can expect continued low interest
rates throughout the economy.
As a financial advisor, I’m certainly concerned about our ballooning
national debt. But I’m equally concerned about another frightening
economic trend. Income inequality.
Over the past few years, I can’t tell you how many times my retired
clients have expressed a concern that their adult children and
grandchildren will never be as financially comfortable as they are.
Unfortunately, I see very little that would incline me to disagree with that likelihood.
During her confirmation hearing, Yellen stated, “It’s not a new
problem, it’s a problem that really goes back to the 1980s, in which we
have seen a huge rise in income inequality.”
She believes there are many causes for the inequality, including
technology, globalization, and the decline of unions. Clearly, there is a
problem, just as there is with health care. And, as with health care
issues, fixing the income inequality problem will take a great deal of
Every suggested fix seems to have a legitimate counter argument. For
example, increasing the minimum wage has been proposed. Some experts
contend, however, doing that could actually increase unemployment.
Another popular suggestion for leveling the playing field would be to
raise taxes on the top wage earners. The counter argument is that
increased taxes would substantially reduce spending by the wealthy. Less
spending would result in an economic slowdown and still more
In short, Chairperson Yellen is going to have a challenging job.
She’ll have to deal with politicians who hold conflicting political and
economic views. Her suggested solutions include a “multitude of things,
including education, maybe early childhood education, job training and
She noted that the Federal Reserve cannot change all these problems but
her goal is to “try to bring about a strong economic recovery that
creates jobs and gives people more opportunities to rise up the ladder”.
Think of the Federal Reserve Chairperson as the one steering the boat.
The problem is, she doesn’t set the course. That’s in the hands of
politicians who have proven to be poor stewards of our dollars.
There’s no question in my mind that Janet Yellen has inherited a
difficult situation. There will be many challenges. Let's hope she can
close the income gap by helping people up the economic ladder rather
than by making everyone poor by pushing us down the ladder.
To get up that ladder, we’ll need an economy much stronger than we’ve
seen in many years. If politicians would allow economics to trump
politics, I’m confident the economy would take off like a rocket.