The rich are feeling the benefits of the Federal Reserve’s monetary stimulus more than the poor, as gains in U.S. stocks bolster confidence among the better off.
The CHART OF THE DAY shows the gap in sentiment between U.S. households with income of over $50,000 and those earning less than $15,000 widened to the most since February 2007, based on data from the New York-based Conference Board. The Standard & Poor’s 500 Index has more than doubled to a record from a low in March 2009, while the S&P/Case-Shiller gauge of home prices advanced about 17 percent during the period.
“The wealthy have lots of equities, so they are benefiting more from higher stock prices,” said Jin Kenzaki, a foreign bond strategist in Tokyo at Royal Bank of Scotland Group Plc’s RBS Securities unit. “Low-income households could get a wealth effect from sustained increases in property values, but the slowing growth in home prices suggests this divergence of confidence isn’t about to narrow yet.”
The Fed is buying $40 billion in mortgage-backed securities and $45 billion in Treasuries every month to support the world’s largest economy through lower borrowing costs. The central bank has also kept the benchmark rate at a record zero to 0.25 percent since December 2008.
The Gini index of income inequality held last year at an all-time high, census bureau data show. The median income of U.S. households was $51,000 last year after adjusting for inflation, according to figures from the bureau. Families earning $50,000 to $74,999 made up 18 percent of the total, down from 21 percent three decades ago.
“Monetary policy is not a panacea,” said Kenzaki. “The disparity in confidence shows there’s a limit to it.”