The White House yesterday congratulated itself on a Census Bureau report that showed household income grew at a record pace in 2015.
The positive data are unlikely to get the Federal Reserve to budge from its narrative that the U.S. economy is weak and can’t handle a hike in interest rates. Investors expect the central bank to keep its key rate near 0.50 percent at its meeting next week.
Last year’s 5.6 percent gain in household income also neglects to show how poor and middle-class families struggle to get ahead, according to economic columnist Eduardo Porter at The New York Times.
“Today, median household incomes are still 2.4 percent below the absolute peak they hit in 1999,” he writes. “At the bottom of the ladder, households at the 10th percentile — those poorer than 90 percent of the population — are still a bit poorer than they were in 1989.”
The Census Bureau’s income data focus on “money income” that excludes government benefits like food stamps and ignores the effect of tax credits to lower-income households.
Income inequality has continued to widen with households in the bottom fifth of the rankings taking home 3.4 percent of the total income pie last year, compared with 5.8 percent in in 1974. The bottom fifth last year had an average income of $22,800, compared with the national median of $56,516, Census data show.
“With their share shrinking with almost every economic cycle, it is hardly a surprise that it takes longer for them to experience any income gains at all,” Porter says. “Growth, alone, is not adding to their prosperity as it once did.”
On Monday, Fed Governor Lael Brainard said possible weakness in the labor market and global economy warrants a cautious monetary policy.
"Today's new normal counsels prudence in the removal of policy accommodation," Brainard said in prepared remarks to the Chicago Council on Global Affairs.
The Fed responded to the 2008 financial crisis, which followed a collapse in a massive U.S. housing bubble, by cutting interest rates to a record low of about zero percent in an attempt to blunt the worst recession in 80 years. While the U.S. bounced back from recession and the unemployment rate fell from a 30-year high, growth never exceeded 3 percent a year for the first time since World War II.
In December, the central bank hiked rates for the first time in 10 years, but has resisted additional increases amid signs of a weakening global economy and political jolts like the U.K.'s June 23 vote to leave the European Union. The Fed has never raised borrowing costs within two months of a U.S. presidential election.
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