Welcome to the New ‘Good’ Economy, Where Millions Get Left Behind

Prices aren't coming down, wages for many aren't catching up and rent is deeply unaffordable. But policymakers say everything is going great.
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Treasury Secretary Janet Yellen said last week that prices probably won’t ever go back to pre-pandemic levels, but that American workers are fine since they are making more money on average.  

That may come as a surprise to workers around the country who feel deep pessimism about the economy, and a closer look at numbers around housing affordability and other financial barometers would vindicate those feelings. While the numbers might look positive in aggregate, they mask the struggles facing a large swath of Americans, as well as the uncomfortable truth that in the long-term, the Fed might have made the problem worse. 


Facing inflation-related questions during Financial Stability Oversight Council’s annual presentation to the Senate Banking Committee on Thursday, Yellen said “some prices will be higher than they were before the pandemic and will stay higher.” 

“But,” she added, “wages have risen considerably, and the pace of price increases has now receded over the last six months.”

Yellen mostly delivered big-picture good news on the economy and the Biden administration’s role in bringing down inflation. But Yellen’s analysis masked the lack of progress on the biggest driver of inflation, housing costs, where the Fed’s actions have been felt inadequate at best. Shelter costs were up 6.2 percent year over year in December, according to the Bureau of Labor Statistics, and renters are more cost-burdened than they ever have been, according to a January report from Harvard’s Joint Center For Housing Studies. 

Republican senators mostly used Yellen’s appearance to portray inflation as out of control while Democrats tried to present a slightly more optimistic picture. Republican analysis of stimulus checks and big government as drivers of inflation is off-base, but they’re right that Yellen’s rosy picture masks the many ways the economy is still painful and people are not better off.


The Fed has made money harder to access, resulting in higher interest loans for multifamily apartment construction and higher rents to pay those loans back. The nation is also losing units that are affordable to the most low-income renters, and the Biden administration’s temporarily helpful pandemic safety net is fraying. All of that is contributing to the highest number of homeless people since the 2008 financial crisis.

The Fed has raised interest rates 11 times since 2022 in the hopes that tighter lending would “cool” the economy—i.e. make it harder to get a raise and easier to get laid off—and subsequently lower inflation. (Former Treasury secretary Larry Summers was particularly vocal about what he saw as the need for higher unemployment.)

The broad picture shows that the Fed ended up with the best of both worlds: a fairly healthy, if unevenly distributed recovery, with little of the “pain” that Summers and others said was necessary. There have been mass layoffs in several industries, among them tech and journalism, but the economy is still adding lots of jobs, including 353,000 in January, according to the Bureau of Labor Statistics. 

As Yellen noted, many peoples’ wages are keeping pace or exceeding inflation. A Center for American Progress report showed that 57 percent of workers had higher inflation-adjusted wages than before the pandemic. Another way to put it is that workers were making about $900 more a year when adjusting for inflation. According to the report, “prices have increased 20 percent since the fourth quarter of 2019, while wages for a typical worker have grown 23 percent.” 


That sounds like good news, and, in aggregate, it is. But still leaves 43 percent of workers with wages that are the same or lower than they were before the pandemic, and compared to the mid-2010s, the distribution of wage increases is fairly modest. In March 2015, for example, 71 percent of workers had a raise above the pace of inflation, according to the Center for American Progress. 

Look even closer, and you see that decades of stagnant wage growth prior to the pandemic means much of the imbalance between costs and wages has been locked in. The cost of goods compared to wages also doesn’t account for people who were laid off in the early months of the pandemic and are still digging themselves out of debt. Nor does it factor in the dissolution of the pandemic safety net, including a higher child tax credit that briefly halved child poverty, eviction moratoria that have now elapsed, eviction prevention funds that have evaporated, the cuts of millions of people from Medicaid rolls and the restart of student loan payments. 

People who have jobs have less flexibility to switch careers, and credit card debt has climbed steadily toward an ever-greater record high, with “serious delinquencies” recently reaching their highest level since 2009, according to the credit reporting agency TransUnion.

But by far, the biggest dent in the everything-is-going-well narrative is how unaffordable housing is. Half of all renters in the United States are now cost-burdened, meaning they spend 30 percent or more of their income on housing, according to January reporting from Harvard’s Joint Center for Housing Studies.


The Harvard report follows up on the center’s previous report, which found the country is losing housing affordable to the lowest incomes: 2.1 million units under $600 a month have been lost since 2012. (The lowest-income 26 percent of renter households are making less than $24,000, which means $600 is the most they can pay without remaining rent-burdened.)

There were a number of reasons why these units were being lost, including an aging housing stock, but a big reason is rent inflation: “The spike in asking rents during the pandemic accelerated the trend, with more than half a million low-rent units lost just between 2019 and 2022,” according to the January report. Even more units are going to be lost in the next decade: about 325,000 units that remained affordable because of federal tax credits are scheduled to revert to market rate rents between 2024 and 2029.

Rent growth has consistently been the biggest driver of inflation. In the case of rents, Yellen is plainly wrong, according to the report. “These losses have contributed to a decades-long challenge for renters: rent increases are outpacing income gains,” the authors write. Adjusting for inflation, rent has grown 21 percent between 2001 and 2022. Renter income has grown 2 percent in that time. 

A four-decade peak in housing construction has provided little relief for the most low-income renters, as most of the units being built are priced on the higher end. 

Housing, like food, is a necessity; it is typically the single largest monthly cost for American households. The result of inflating rent is that people have less money to spend on everything else: the most cost-burdened households spent 39 percent less on food and 42 percent less on healthcare than people who are not cost-burdened, according to Harvard’s report. 

The Federal Reserve’s actions have been counter-productive in this regard. According to the report, the tightening of lending has increased the cost of debt to build multifamily properties. This doesn’t just mean a slowdown of construction, but it means the units that do get built need to have a higher rate of return to pay back lenders and make a profit. Even economists, who have been hesitant to criticize interest rate hikes, seem to agree. A poll published Monday by the National Association for Business Economics found that economists increasingly believe the Fed is being “too restrictive,” the highest share, in fact, since 2011.

So yes, costs have gone up and will remain high, as Yellen said. But most Americans, particularly renters, are not better off than they were before the pandemic, and it’s not just vibes: They have less money in their pockets.