Central bank leaders acknowledge their actions during the Covid health crisis have made economic divisions worse, with no simple solution in sight.

America’s central banking system has made the divide between wealthy and struggling households bigger through its recent policy choices, and top officials say they don’t have an easy way to reverse this trend.

During the health crisis, millions of people, particularly those with money, benefited from rock-bottom borrowing costs when the central bank made credit cheap to prop up the economy.

Today, even though lending costs have climbed far above those crisis levels, roughly 20% of people who own homes still pay less than 3% on their home loans, Fannie Mae reports. These families not only spend less each month on housing but have also built up financial worth simply by holding property.

At the same time, Wall Street is wrapping up another strong year of profits, driven by continued spending on artificial intelligence technology. This marks an impressive three-year stretch of market growth.

People with smaller paychecks, who rarely buy stocks and typically rent rather than own homes, have seen none of these financial benefits over the last five years. Their earnings also grew more slowly than those of rich workers throughout 2025, based on information from the Atlanta branch of the central banking system.

Rising costs have become a major worry for many people, polls and surveys show, especially those earning less. Politicians have also started paying attention to this issue, including President Donald Trump, though he brushed aside these worries in a recent speech.

Central bank officials, who help guide the country’s economy, have admitted they cannot quickly fix what experts call 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?'” Christopher Waller, a central bank governor, said on December 16 at the Yale CEO Summit.

Other policymakers, including Chair Jerome Powell, have recognized this growing divide 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.

How money policy played a part

While the central bank’s decisions contributed to the different outcomes between rich and poor Americans, this was never the intended result.

In 2020, officials were right to drop rates nearly to zero to help an economy damaged by the pandemic. The institution, which Congress directs to aim for full employment and steady prices, faced business closures that were sending joblessness soaring.

Rates stayed extremely low until March 2022, when officials started raising them sharply to fight rising prices. By that time, roughly a quarter of the nation’s approximately 85 million homeowners had secured very low mortgage rates, and only a small number have given up those low rates since.

However, the central bank may have contributed to the K-shaped economy much earlier.

“This is a phenomenon that really started in 2008, with the massive liquidity injections that the Fed did in response to the global financial crisis, which raised stock market values and housing values,” Oren Klachkin, a financial market economist at Nationwide told CNN. “Since then, we’ve seen this persistent gap between the haves and the have nots, which actually narrowed after the pandemic.”

The poorest Americans saw their pay grow quickly from 2020 through 2023, Atlanta branch data shows, moving much faster than pay for the wealthiest workers. Back then, employers were rushing to hire from a small pool of available workers.

That changed this year. In September, the 12-month moving average of middle pay growth for the bottom quarter of households was 3.7%, compared with 4.4% for top earners.

“Those at the bottom don’t have housing values to help them. They don’t have the stock portfolios to help them. And it’s harder for them to tap into potential lines of credit,” Klachkin said. “They mostly depend on their wages to outpace inflation.”

No quick fix available

The central bank’s primary tool, its key rates, which affect borrowing costs throughout the economy, is well known as a crude instrument.

This means it cannot assist particular groups when trying to strengthen or ease pressure on the job market, which officials are currently doing. The institution also doesn’t control long-term rates, which typically follow yields on longer Treasury notes.

Over the past two years, the bank has dropped its benchmark lending rate by 1.75 points to keep the job market stable. Officials hope these cuts will lift everyone together.

The best approach to fix the K-shaped economy may simply be preventing job market decline and hoping other factors boost employment and pay.

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