Bernanke: ‘Notable Restraints’ Persist in U.S. Recovery

Fed Chairman Ben BernankeIn a speech before a group of Southern state lawmakers, Federal Reserve Chairman Ben Bernanke said “notable restraints” persist in the nation’s economic recovery, slowed by unemployment, tight credit and an “overhang” of vacant and foreclosed homes.
It wasn’t exactly encouraging news for the Southern Legislative Conference meeting in South Carolina. Part of the Council of State Governments, the conference heard the Fed chairman give a brief update on the recession, which has caused state and local tax revenues to plummet.
Cuts in state and local budgets have “imposed hardships in local jurisdictions around the country and are also part of the reason for the sluggishness of the national recovery,” Bernanke said.
Bernanke offered some optimism.
“In the household sector, growth in real consumer spending seems likely to pick up in coming quarters from its recent modest pace, supported by gains in income and improving credit conditions,” he said.
But the Fed chief’s assessment was mostly downbeat.
He said “significant time” would be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009.
“After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, an improvement but still a pace insufficient to reduce the unemployment rate materially,” the Fed chairman said
He added that the housing market was another key factor in the sluggish recovery.
“To be sure, notable restraints on the recovery persist,” Bernanke said. “The housing market has remained weak, with the overhang of vacant or foreclosed houses weighing on home prices and new construction. Similarly, poor economic fundamentals and tight credit are holding back investment in nonresidential structures, such as office buildings, hotels, and shopping malls.”
Despite improvements overall in the banking system, many banks continue to have large volumes of troubled loans, and lending standards are still tight, he said.
“With credit demand weak and with banks writing down problem credits, bank loans outstanding have continued to decline,” Bernanke said. “Small businesses, which depend importantly on bank credit, have been particularly hard hit by restrictive lending standards.”
Bernanke said the Fed has been working to facilitate the “flow of funds to creditworthy small businesses.”

Leave a Reply

Your email address will not be published. Required fields are marked *