Tags: fed | raskin | growth | cutbacks

Fed's Raskin: Inequality, Cutbacks May Curb Growth for Years

Friday, 17 May 2013 07:26 AM

 

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Federal Reserve Governor Sarah Bloom Raskin said income inequality and government cutbacks may slow economic growth for years.

“While I am hopeful that pressures will ease further as home prices continue to rebound, I also believe that some of the restraints on the recovery may be quite long-lasting,” Raskin said in prepared remarks for a speech in Washington.

“The large and increasing amount of inequality in income and wealth, which has been an ongoing development for decades, may have exacerbated the crisis and I think more research is required to determine whether it may also pose a significant headwind to the recovery from the crisis for years to come.”

Fed officials have vowed to press on with $85 billion in monthly asset purchases until the labor market has “improved substantially,” an outcome that Raskin suggested may be far off. The unemployment rate has remained above 7 percent since December 2008 and Raskin said further unemployment declines are likely to remain “modest.”

The central bank “will continue to conduct monetary policy so as to promote a stronger economic recovery in the context of price stability,” she said.

Income Growth

Answering audience questions after her speech, Raskin said she is troubled that household incomes aren’t increasing at a more rapid pace.

“Real disposable incomes have not been rising at a robust level,” Raskin said. “The impact from this accommodative monetary policy is going to differ based on how that household has composed its components of wealth” but “monetary policy has as its primary goal this idea of lifting all boats.”

She also said the central bank is monitoring student debt levels, which she said may be discouraging some young people from starting families.

“The mounting levels of student debt are something we are keeping an eye on,” she said. There are “some hypotheses out there that student debt is crowding out” household formation.

In her speech, Raskin said that “the recovery does appear to have picked up steam in some sectors, most notably in housing, likely reflecting the easing of some of the headwinds that had been holding back the pace of the recovery in earlier years.”

She called fiscal policy an “important source of restraint” for economic growth. “Both the tax legislation signed into law in January and the sharp spending cuts associated with sequestration will likely significantly hinder GDP growth this year,” Raskin said.

Budget Surplus

The U.S. posted its widest budget surplus in five years in April as an improving economy swelled tax revenue, while budget cuts earlier in the year slowed spending.

The surplus for the month when tax payments are due increased to $112.9 billion, the biggest since April 2008, from $59.1 billion a year earlier, the Treasury said in its monthly budget statement last week.

“Looking further ahead, fiscal policy seems likely to remain restrictive at the federal level,” Raskin said in a speech to the Society of Government Economists and the National Economists Club.

Starts of new U.S. homes fell more than forecast in April to a five-month low, indicating a pause in the industry’s progress as builders slowed work on apartments. Building permits surged to an almost five-year high.

Building applications that are higher than the level of starts signal residential construction will rebound as near record-low mortgage rates and improving job opportunities draw buyers.

Raskin, 52, was appointed by President Barack Obama in 2010 for a term that expires in 2016. Before joining the Fed she was Maryland’s Commissioner of Financial Regulation, according to the Fed Board website.

© Copyright 2014 Bloomberg News. All rights reserved.

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