Investing.com -- Federal Reserve Vice Chair Philip N. Jefferson recently discussed the relationship between the Federal Reserve’s dual mandate and economic mobility in the U.S. at the Economic Mobility Summit in Philadelphia. The dual mandate, which focuses on maximum employment and price stability, does not directly control economic mobility, according to Jefferson.
Jefferson highlighted the importance of economic mobility, defining it as the capacity to ascend the economic ladder, a fundamental element of the American dream. He cited a 2019 survey where nearly 90% of respondents identified hard work as essential for getting ahead in life, with only 30% indicating that coming from a wealthy family was important.
Jefferson also cited a quote from former Federal Reserve Chair Ben Bernanke, underlining the significance of economic opportunity in strengthening the economy. Economic mobility was measured by relating an individual’s adult income to their family income during childhood. Data from Harvard economist Raj Chetty showed that children born into lower-income families tend to be lower on the income distribution as adults.
Jefferson discussed the implications of the Fed’s dual mandate on economic mobility, focusing on the economic expansion following the 2007-2009 Global Financial Crisis (GFC). During this period, the economy expanded for 128 consecutive months, marking the longest economic expansion in U.S. history. The aggregate unemployment rate fell steadily from a peak of 10% in October 2009 to 3.5% in September 2019, the lowest level recorded in nearly 50 years.
Jefferson highlighted that the strong labor market conditions during this period drew many new participants into the labor force, including teens and younger workers. He suggested that such conditions could increase upward mobility. Wage growth for the bottom half of earners picked up about five years into the expansion, and by 2017, it was notably stronger compared with that for workers in the top half of the earnings distribution.
Regarding price stability, Jefferson noted that inflation remained low and stable during the economic expansion following the GFC. He emphasized the importance of low and stable inflation in ensuring that nominal wage gains are not eroded in real terms and that necessities remain affordable.
Jefferson also drew attention to the role of higher education in facilitating economic mobility. He pointed out that when inflation was low for an extended period during the economic expansion following the GFC, there was a moderation in the growth of higher education costs.
In conclusion, Jefferson suggested that achieving the dual mandate sets the conditions for all individuals to succeed, including those moving up the economic ladder. He also posed a question about whether economic mobility matters for the conduct of monetary policy, stating that monetary policy tools are blunt instruments for affecting economic mobility.
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