Fed Policies Helping Low-Income Americans – Raskin

Reuters, April 18, 2013. All Rights Reserved.

(Reuters) – Easy money policies are bringing some relief to lower-income Americans hard-hit in the recession and the easing could become increasingly potent as the housing market recovers, a top U.S. Federal Reserve official said on Thursday.

In a speech on equality and the U.S. economy, Fed Governor Sarah Raskin backed the policy accommodation and argued it would continue to help the overall economic recovery. But the long-running trend of inequality and stagnating wages in the United States has slowed that rebound, she said.

“The accommodative policies … and the concerted effort we have made to ease conditions in the mortgage markets will help the economy continue to gain traction. And the resulting expansion in employment will likely improve income levels at the bottom of the distribution,” Raskin said in prepared remarks to the Hyman P. Minsky conference.

“However, given the longstanding trends toward greater income and wealth inequalities, it is unlikely that cyclical improvements in the labor markets will do much to reverse these trends,” she said.

Raskin has consistently supported the central bank’s policy of low interest rates and large-scale bond-buying, both of which are meant to spur investment, hiring and broader economic growth in the wake of the 2007–2009 recession.

Gross Domestic Product growth was very tepid at the end of last year, but is expected to have rebounded strongly to 3-percent or more in the first quarter of this year. Still, recent economic signals have been weaker and the Fed is concerned that could hamper growth.

Raskin’s speech amounted to a in depth look into what effects growing economic inequality, which has been on the rise for decades in the United States, has on the current recovery and on Fed policy.

“As the housing market recovers, I think it is possible that accommodative monetary policy could be increasingly potent,” she said.

Still, the recession’s plunge in net wealth and jump in unemployment will have “long lasting and lingering” effects on spending.

“Although it is too early to state with certainty what the long-term effect of this recession will be on the earnings potential of those who lost their jobs, given the severity of the job loss and sluggishness of the recovery … it is very likely that, for many households, future labor earnings will be well below what they had anticipated in the years before the recession,” said Raskin, who has a permanent vote on Fed policy.

She noted that the country remains almost 2.5 million jobs short of pre-recession levels.

The U.S. unemployment rate was 7.6 percent last month, down from 10 percent in 2009, but short of the 5-6 percent range to which Americans are accustomed.