By Steven K. Beckner
WASHINGTON (MNI) – Federal Reserve Chairman Ben Bernanke Friday
reemphasized his concern about high unemployment and home foreclosures,
while making no mention of inflation, in a speech on “community
development.”
Two days after holding a press conference following a meeting of
the Fed’s Federal Open Market Committee meeting, Bernanke did not talk
about monetary policy per se, but the thrust of his remarks reinforced
his Wednesday message that the Fed needs to keep monetary policy “highly
accommodative” for the indefinite future.
Bernanke had not been expected to say much about the economy or
policy in a speech to the Fed’s Community Affairs Research Conference
across the Potomac River from Fed headquarters in Arlington, Virginia.
But he took the opportunity to talk again about his leading economic
worries, relating them to the problems of lower income people and
communities.
“The broader economy is in a moderate recovery, and we have
recently seen some welcome, if gradual, improvement in the labor
market,” he said in remarks to the conference. “But our economy is far
from where we would like it to be, and many people and neighborhoods are
in danger of being left behind.”
Earlier, in a similar vein, Bernanke said “the economy is
recovering at a moderate pace” and noted that “the labor market has been
gradually improving and the unemployment rate has declined somewhat.”
“But unemployment remains quite high, particularly among
minorities, the young, and those with less education,” he added. “What’s
more, long-term unemployment remains at historically high levels. Nearly
half of the unemployed have been out of work for six months or more.”
What’s more, Bernanke observed that “the housing market is also
holding back the recovery.”
“The foreclosure rate remains very high, and many homeowners who
have avoided foreclosure find themselves ‘under water,’ meaning their
mortgage debt exceeds the value of their homes,” he said.
“Obviously, the problems in the labor market and the housing market
are not unrelated,” he continued. “In particular, lost income from
unemployment is causing many families to fall behind on their mortgage
payments.”
Conspicuously absent from Bernanke’s text was any mention of rising
gasoline, food and other prices, even though those presumably affect
lower income households more than most.
On Wednesday, Bernanke echoed the FOMC policy statement in
acknowledging that inflation had “picked up” and needs to be monitored,
but was likely “transitory” in nature.
The Fed chief told reporters then that the Fed will tighten
monetary policy “at the appropriate time,” but left the impression that
that time is some ways off. He defined the FOMC’s “extended period” of
“exceptionally low” short-term interest rates as encompassing at least
two more FOMC meetings.
And he said “the substantial ongoing slack in the labor market and
the relatively slow pace of improvement remain important reasons that
the committee continues to maintain a highly accommodative monetary
policy.”
While the FOMC, as expected, voted to complete its $600 billion
quantitative easing program at the end of June, it left open-ended its
practice of reinvesting proceeds of maturing mortgage backed securities
to prevent the Fed’s balance sheet and bank reserves from shrinking.
Bernanke said a discontinuation of the reinvestment policy will
likely be an “early step” in monetary tightening, whenever the
“appropriate time” comes. But he made clear it will not occur until
sometime well after the conclusion of QE2 and only after careful
appraisal of economic conditions.
One of the Fed’s statutory responsibilities is to enforce the
Community Development Act (CRA), which mandates that financial
institutions under its purview provide fair access to credit to lower
income individuals and communities.
And so, speaking to the “community development” delegates Friday,
Bernanke expressed particular concern for how economic and financial
difficulties are affecting less well-off people.
“People who were vulnerable to begin with — those with low
incomes, few assets, and less education — have had a more difficult
time weathering the financial storm or recovering from setbacks,” he
said. “The same is true for communities that were already relatively
poor, with fewer community assets and insufficient drivers of economic
growth.”
He said some people “did not share in our country’s general
prosperity, even in good times,” and the financial crisis made matters
even worse.
“Declines in the values of homes and stocks sharply reduced the
wealth of many Americans during the crisis,” Bernanke noted.
“Three-fifths or more of families across all income groups reported a
decline in wealth between 2007 and 2009, and the typical household lost
nearly one-fifth of its wealth, regardless of income group.”
“Unemployment and declines in wealth obviously can make it
difficult for a household to pay its debts on time,” he went on, citing
survey data showing that “lower-income households fell behind on their
payments at a substantially higher rate than higher income
households.”
“Just as lower-income households weather financial storms with more
difficulty, the same is true of communities,” he said. “In short, the
financial crisis and recession touched many families and communities.
But those that were struggling before the crisis were often
disproportionately affected.”
Bernanke said “providing responsible credit for individuals and
small businesses through community development financial institutions
can stimulate economic activity that generates local tax revenues.”
And he pledged, “For our part, we at the Federal Reserve will
remain closely attuned to the economic health of all communities,
including low- and moderate-income communities.”
** Market News International **
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