Federal Reserve Chairman Ben Bernanke said he’s concerned about the toll joblessness is taking on people in the US and that the central bank is trying encourage lending to creditworthy companies.
“High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole,” Bernanke said on Thursday at a Fed-hosted forum in Detroit, where the jobless rate exceeded 24 percent in April.
Bernanke, speaking to an audience that included executives from JPMorgan Chase & Co and auto supplier BorgWarner Inc, expressed “guarded optimism” for a loosening of the credit constraints that have held back economic recovery.
The Fed chairman spoke a day before a Labor Department report that is forecast to show payrolls expanded for a fifth straight month while the unemployment rate stayed close to a 26-year high. Two regional Fed bank presidents on Thursday talked about the need to eventually raise interest rates from a record low, in part to head off the risk of inflation.
Atlanta’s Dennis Lockhart said in a speech that rates may need to be increased even while the unemployment remains elevated. Kansas City’s Thomas Hoenig, who’s dissented from the central bank’s pledge to keep rates low for an “extended period,” predicted that the recovery has the momentum to sustain itself and said the Federal Open Market Committee (FOMC) should raise its benchmark rate to 1 percent within a few months.
The Fed has kept its main interest rate close to zero since December 2008 to stoke job growth. In its statement in April, the FOMC repeated its view that “tight credit” is restraining consumer spending.
In Detroit, home to General Motors Co, Bernanke said the central bank is telling field examiners to encourage lending to creditworthy businesses. Outstanding loans to small businesses have declined to about US$660 billion in the first quarter of this year from almost US$700 billion two years ago, Bernanke said. It’s “difficult to answer” how much of the drop comes from declining demand and how much from supply, he said.
“We’ve still got a long way to go, but I’m hopeful that we’ll see improved conditions for credit going forward,” he said. “The Federal Reserve views this as being absolutely central to the recovery.”
The Fed’s latest survey of senior loan officers, released May 3, showed the smallest proportion of banks in two years restricted lending standards in the first quarter.
Dave Andrea, senior vice president at the Original Equipment Suppliers Association, a Troy, Michigan-based trade group for auto-parts suppliers, said in an interview that while credit has eased from a year ago, companies with less than US$100 million in revenue are having difficulty getting loans for capital equipment.
“The chairman is reading all those surveys,” Andrea said. “But when stuff gets aggregated up to that point you really don’t know what the root causes are.”