Raskin Says Labor Market Still Weak After Unemployment Drop
Federal Reserve Governor Sarah Bloom Raskin said the central bank is taking the right steps to lower borrowing costs and address “stubbornly high” unemployment.
“Although the pace of employment growth has picked up in recent months and the unemployment rate has fallen some, the labor market remains quite weak,” Raskin said in a speech today to bankers in Baltimore.
While Raskin didn’t say whether she favors more monetary policy easing, she spoke hours after the government said the jobless rate fell in December to 8.5 percent, the lowest since February 2009. She has backed Chairman Ben S. Bernanke’s decisions including September’s move to sell $400 billion of short-term Treasuries and buy an equal amount of long-term securities, an action dubbed Operation Twist.
“Our deployment of unconventional policy tools has been completely appropriate to help promote the Federal Reserve’s statutory mandate of maximum employment and price stability,” said Raskin, who was Maryland’s chief banking regulator before her appointment to the Fed in 2010.
The Fed said this week it will begin publishing officials’ projections for the benchmark interest rate with the next meeting Jan. 24-25, and signaled it may alter language saying rates will probably stay near zero until at least mid-2013.
The interest-rate projections will make the Fed’s broader set of economic forecasts “more meaningful,” Raskin said, responding to an audience question after the speech.
Almost to Zero
The central bank cut its main interest rate almost to zero in December 2008. Bernanke has said the Fed is considering additional actions, including a third round of large-scale asset purchases.
Today’s Labor Department report also showed that payrolls rose by 200,000 last month, more than economists forecast, following a revised 100,000 gain in November that was smaller than first estimated. Hours worked and earnings climbed.
Raskin’s remarks follow comments today by three Fed policy makers backing additional action to aid the housing market. New York Fed President William C. Dudley, in a New Jersey speech, called on the U.S. government to try new programs to revive the housing while saying the central bank may still consider ways to cut interest rates.
‘Speed and Strength’
Fed Governor Elizabeth Duke said in Richmond, Virginia, that “forceful and effective housing policies have the potential to significantly influence the speed and strength of our economic recovery.” She also said the Fed’s current stance of monetary policy is “appropriate.”
Raskin highlighted statistics showing 13 million Americans unemployed at the end of 2011, another 8 million classified as working “part-time for economic reasons” and another 2.5 million “marginally attached” to the labor force.
“The unemployed, the underemployed, the marginally attached, and the discouraged can speak powerfully to the slow pace of the recovery,” Raskin, 50, said in the speech to an economic forum hosted by the Maryland Bankers Association.
Raskin devoted about half of her speech to discussing the Fed’s approach to supervising community banks, saying they require procedures different from those used for large banks. After several quarters of shrinking, “lending by smaller domestic banks generally resumed expanding around the middle of last year,” Raskin said, citing Fed figures.
‘Lingering Weak’ Fundamentals
“Although measures of community banks’ profitability have risen from their recession lows, pressures on the banks’ profitability and credit quality remain as a result of the lingering weak macroeconomic fundamentals, especially the stubbornly high amount of unemployment,” she said.
Community banks across the U.S. face an “oppressive exam environment,” the Independent Community Bankers of America, a Washington-based trade group representing about 5,000 financial institutions, said in a statement last month. “The pendulum has swung too far in the direction of overregulation, which is stifling economic growth,” the organization said.
Raskin, without discussing that criticism, said today that “lending by community banks plays an important role in the ongoing economic recovery, especially by providing credit to small businesses.”
“It is absolutely critical that examination and supervision do not produce outcomes that are barriers to small business expansion,” she said in the speech.
Total U.S. loans (ALCBLOAN) and leases from banks have declined to $6.91 trillion as of Dec. 21 from $6.93 trillion on Nov. 30 after rising from $6.7 trillion in March, Fed data show.
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