Bernanke Says Joblessness, Foreclosures Pose Hurdles to Recovery

By Scott Lanman and Darrell Preston


April 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said joblessness, home foreclosures and weak lending to small businesses pose challenges to the economy as it recovers from the worst recession since the 1930s.

“We are far from being out of the woods,” Bernanke said today in a speech in Dallas. While the financial crisis has abated and economic growth will probably reduce unemployment over the next year, the U.S. faces hurdles including the lack of a sustained rebound in housing, a “troubled” commercial real estate market and “very weak” hiring, he said.

The remarks reflect concerns by Fed officials at their meeting last month that the job market and tight credit would restrain consumer spending. At the session, Bernanke and his colleagues reiterated interest rates will stay very low for an “extended period.” He didn’t repeat that in today’s speech, while saying the Fed’s “stimulative” rates will aid growth.

“The economy has stabilized and is growing again, although we can hardly be satisfied when one out of every 10 U.S. workers is unemployed and family finances remain under great stress,” Bernanke said in prepared remarks to the Dallas Regional Chamber.


Separately, New York Fed President William Dudley said today that the benchmark federal funds rate “needs to be exceptionally low for an extended period to contribute to easier financial conditions to support economic activity.”


Dudley, who serves as vice chairman of the rate-setting Federal Open Market Committee under Bernanke, was responding to a question from former U.S. Deputy Treasury Secretary Roger Altman, now chairman of Evercore Partners Inc., after a speech to the Economic Club of New York.

Treasuries Rise

Treasuries rose, pushing the yield on 10-year securities down six basis points to 3.89 percent at 2:16 p.m. in New York. The Standard & Poor’s 500 Index fell 0.3 percent to 1,186.26.

At the meeting last month, central bankers left the benchmark rate target, covering overnight interbank loans, in a range of zero to 0.25 percent, where it has been since December 2008.


The median estimate of analysts surveyed by Bloomberg News last month is for a Fed interest-rate increase in November.

“Although much of the financial system is functioning more or less normally, bank lending remains very weak, threatening the ability of small businesses to finance expansion and new hiring,” he said.



Securities Purchases



The Fed last week completed plans to purchase $1.25 trillion of mortgage-backed securities and $175 billion of federal agency debt to reduce home-loan costs. Central bankers are debating when to start selling the debt to reduce the Fed’s balance sheet, which has ballooned to $2.31 trillion from its pre-crisis level of about $874 billion.



“We have yet to see evidence of a sustained recovery in the housing market,” Bernanke said. “Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures. The commercial real estate sector remains troubled, which is a concern for communities and for banks holding commercial real estate loans.”



Bernanke said some of the economy’s “toughest problems” are in the job market. U.S. employers added 162,000 jobs in March, the third gain in five months and the most in three years. The unemployment rate held at 9.7 percent, close to a 26- year high.



“Hiring remains very weak,” Bernanke said. “I am particularly concerned” that more than 40 percent of those without jobs have been out of work for at least six months, because such spells may erode skills and reduce the workers’ income and employment prospects, the Fed chief said.

http://www.bloomberg.com/apps/news?p...UHEGDJho&pos=1


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