Analysis by Bryan Mena, CNN
5 min read
The Federal Reserve’s policy decisions in recent years have contributed to a worsening of economic inequality in America, and some of the central bank’s policymakers say it’s not a problem they can easily fix.
Millions of Americans, especially the wealthiest, took advantage of the ultra-low interest rates during the pandemic, when the Fed loosened monetary policy to shore up the economy. Borrowing costs are now well above pandemic-era levels, but about 20% of homeowners still have a mortgage rate below 3%, according to Fannie Mae. Not only do those households have lower mortgage payments, but they’ve also been accumulating wealth simply by owning a home.
Meanwhile, the US stock market is closing in on yet another year of solid gains, boosted by continued investments in AI, marking a stunning three-year bull market.
Low-income households, who are less likely to invest in stocks and are more likely to be renters, have missed out on those so-called wealth effects in the past five years. The growth of their wages also trailed those of the wealthiest throughout 2025, according to the Federal Reserve Bank of Atlanta.
Affordability has emerged as a key concern for many Americans, according to various polls and surveys, especially for those with lower incomes. It has also become a new top priority for politicians, including President Donald Trump, who downplayed those concerns in his recent address to the nation.
Fed officials have admitted they can’t easily address what economists refer to as the “K-shaped economy.”
“When I’ve talked to retailers and CEOs who cater to the top third of the income distribution, everything’s great … it’s the lower half of the income distribution that is staring at this going, ‘What happened?’” Fed Governor Christopher Waller said on December 16 at the Yale CEO Summit. Other Fed policymakers, including Chair Jerome Powell, have acknowledged America’s widening economic inequality this year.
“The best thing we can do is try to get the labor market back on its feet, get the economy kind of growing better, and hopefully the job security and wage gains start catching up,” Waller said.
While monetary policy has played a role in the diverging fortunes between the wealthiest and poorest Americans, it’s an unintended consequence.
In 2020, the Fed was justified in slashing interest rates to near zero to support an economy battered by the pandemic. The Fed, which is tasked by Congress to strive toward maximum employment and stable prices, was dealing with pandemic-era shutdowns of businesses that were causing unemployment to surge.