Powell: "Crucial" U.S. restore health of middle class, pathways to it

By Howard Schneider

WASHINGTON, May 9 (Reuters) - The relatively slow growth of middle class incomes, widening inequality, and declining prospects for the poor to move up the economic ladder are "crucial" problems for the U.S. to tackle in coming years, Federal Reserve Chairman Jerome Powell said on Thursday.

In opening remarks to a two-day Fed conference on the middle class, Powell drew from a wide range of research in recent years concluding that those without a college degree or born into a poor family or neighborhood are much less likely to be working or to join the middle class as they were in the 1950s and 1960s.

"Many Americans believe being middle class means having a secure job and the ability to save. In recent decades, income growth for middle-income households has lagged," Powell said. Increasingly "the prospect of moving up the economic ladder depends on factors beyond effort and talent, including your family, the neighborhood you grow up in, and the quality of the primary and secondary schools you attend," he said, with race and ethnicity continuing to play a role.

The Federal Reserve conference, a biennial event focusing on community development issues, is this year focusing on policies that might reinvigorate the prospects for those in the middle class and those aspiring to join it.

The policies themselves are considered largely outside the Fed's authority over monetary policy, delving into issues of education and skill development, the implications of student debt on family wealth, and home ownership trends.

But Fed officials have become increasingly concerned about the implications for the economy overall if the divergence continues between those who are doing well in the current economy and those who have slipped behind. Trends in automation, returns to education, globalization and other forces may intensify divisions between slow-growing rural areas and fast-growing metropolitan ones, between racial and ethnic groups, and across other dimensions.

"Those circumstances underscore a two-fold challenge for our country: fostering the conditions that will help lower-income families reach the middle class, while ensuring that middle-class status still provides the basic economic security that it has traditionally offered," Powell said. (Reporting by Howard Schneider Editing by Chizu Nomiyama)