The Fed governor said it was “concerning” that theshare of total national income going to wage earners has been in along-term decline. (Photo: Shutterstock)

(Bloomberg) –The long-term vigor of the U.S. economy may be at risk as middle classhouseholds are squeezed by slow growth in income and wealth andrising costs for housing, health care and education, Federal ReserveGovernor Lael Brainard said.

“An economy that delivers an increasing share of income gains tohigh-wealth households could result in less growth in consumerdemand than one in which the gains are distributed more equally,”she said Friday at a Fed community development conference inWashington.

Research shows that households with lower levels of wealth spenda larger fraction of any income gains than their wealthiercounterparts. That has long-term implications for consumption, thesingle biggest engine of growth in the economy, she said.

Declaring that the Fed's mandate to deliver full employment hasserved the U.S. well, Brainard said wage growth has begun to pickup after years of slow gains. That's especially important formiddle class families which don't have many other sources ofincome.

She said though it was “concerning” that the share of totalnational income going to wage earners has been in a long-termdecline.

Drawing in part on new data compiled by the Fed, Brainardsketched out some of the challenges confronting the middleclass:

• They still have not fully recovered the wealth they lost in theGreat Recession. At the end of 2018, the average middle incomehousehold had wealth of $340,000 while those in the top 10 percenthad $4.5 million, up 19 percent from before the recession. While abig reason for the discrepancy is the surge in the stock market,the home equity of the average middle income family is also stillbelow its pre-recession peak.
• One third of middle income adults say they would borrow money,sell something or not be able to pay an unexpected $400 expense.One fourth said they skipped some kind of medical care in 2018because of its cost.
• Nearly three in 10 middle-income adults carry a balance ontheir credit card most or all of the time. Some eight in 10 are atleast somewhat confident that they could obtain an additionalcredit card if they applied for it.
• The share of income spent on rent by middle class renters roseto 25 percent in 2018 from 18 percent in 2007.

One bright spot highlighted by Brainard:  AverageAmericans may be better prepared for retirement than previouslythought. That's because of new data that factors in the expectedvalue of defined benefit pension plans.

Still, with employers shifting away from such plans, it'sperhaps not surprising that many middle-income adults voice concernabout their readiness for retirement, according to Brainard.

“In recent years, households at the middle of the incomedistribution have faced a number of challenges,'' Brainard said.“That raises the question of whether middle-class living standardsare within reach for middle-income Americans in today'seconomy.''

It also raises broader questions about America's future.

“A strong middle class is often seen as a cornerstone of avibrant economy and, beyond that, a resilient democracy,'' shesaid.

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