Young people are the key to America’s economic future, yet they may bear scars from the Great Recession, such as risk aversion to home ownership, for years to come, Federal Reserve Governor Lael Brainard said.
“There is a risk that the high rates of unemployment, low labor force attachment, and stagnant wages experienced by those who have come of age in the years surrounding the Great Recession may have long-lasting consequences,” Brainard said Thursday at a Fed-hosted conference on economic mobility in Washington.
Brainard, 53, joined the Fed Board of Governors in June 2014 and is a former Treasury Department undersecretary for international affairs. In her speech, she emphasized the Federal Open Market Committee’s role in returning the economy to full employment in the context of price stability as one way to secure “strong and equitable economic growth” to boost America’s young workers.
Brainard noted that student-debt levels rose sharply during the years surrounding the 2007-2009 recession, with outstanding balances more than doubling since the downturn began. In most cases, education investments will turn out to be positive, she said, yet factors including failure to complete a degree and the type of program completed could lower earnings expectations.
“For this group, the burden associated with student debt may constrain their economic opportunities for years to come,” she said.
Brainard said young adults who attended for-profit colleges are more likely to default on student loans.
“The fact that for-profit colleges disproportionately attract first-generation college students as well as students relying on debt to fund their education, bears careful scrutiny,” she said.
The combination of high student debt and poor job-market opportunities could be behind reduced household formation rates, Brainard said. Psychological scars from the Great Recession could also keep young people from investing in real estate.
“If the decline in homeownership among young people proves persistent, the implications for asset building for the future could be of concern,” Brainard said.
“Today’s young people are the fulcrum of the economic mobility agenda,” she said. “Those who have come of age in the shadow of the Great Recession have experienced substantial risks and faced daunting challenges in establishing themselves independently in their work lives and their home lives.”