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UPDATE 2-Fed's Brainard: Middle-class wealth still less than before Great Recession

Recession@ (Adds further quotes, context)

WASHINGTON, May 10 (Reuters) - The wealth of middle-class families still has not recovered from the 2007 to 2009 economic crisis, with a lagging rebound in home equity and slow wage growth continuing to widen inequality through most of last year, Fed Governor Lael Brainard said on Friday in a snapshot of soon-to-be-released Fed data.

Brainard, in a broad discussion of the middle class's economic prospects, said the Fed is increasingly concerned about the economic impact if middle-income households continue to struggle in their ability to build wealth, finance homes and educations, and even stay current with their bills.

Families in the 40th to 70th percentiles held wealth of around $340,000 at the end of 2018, based on a new Fed study whose results Brainard discussed at a Fed research conference in Washington. This was below the levels before the crisis and 13 times less than the average $4.5 million held by the top 10 percent.

"A strong middle class is often seen as a cornerstone of a vibrant economy and, beyond that, a resilient democracy," Brainard said. "The discrepancy between slow growth in income and wealth, on the one hand, and rising costs of housing, healthcare, and education, on the other, may be making it more difficult for middle-income families to achieve middle-class financial security."

Over time "the shifting of wealth and income to the top of the distribution and away from the middle could pose challenges to the health and resilience of our economy," she said.

The prospects of the middle class - those earning between $40,000 and $85,000 a year by Brainard's definition - have fueled debate ahead of the 2020 presidential race about issues like the high level of student debt and the cost and availability of health insurance.

While that is all beyond the Fed's authority, as are questions of taxation and issues involving income distribution, Brainard said the Fed still needs to understand dynamics that could, for example, slow consumption.

"There is a palpable sense that the opportunity to reach the middle class and remain in it is receding for many middle-income households," she said, noting recent Fed surveys that found 60 percent of middle-income families don't have enough savings to cover three months of expenses, leaving them financially vulnerable to a layoff or other economic shock. (Reporting by Howard Schneider Editing by Chizu Nomiyama and Jonathan Oatis)