Federal Reserve Chair Ben Bernanke Friday said there is "an awful lot of slack in the labor market" but said he isn't worried about unpaid student loans causing a new financial crisis.
"I think we can agree there's an awful lot of slack in the labor market and a lot of young people living with their parents and the like," Bernanke said during a panel discussion at the International Monetary Fund.
"And that's a very important imperative in why the Federal Reserve in particular is taking strong action to try and support job creation," he added.
Responding to remarks made by another panelist, former Treasury Secretary Larry Summers, Bernanke said, "I think the unemployment rate probably understates the degree of slack in the labor market. I think the Employment-Population ratio overstates it somewhat because there are important downward trends in participation."
His remarks come as new figures Friday showed the unemployment rate inched up in October to 7.3%, accounting for federal government workers reporting during the shutdown. U.S. nonfarm payrolls rose 204,000 in October, compared to forecasts for 120,000, and August and September figures were revised up a total 60,000.
Asked about the danger of student loans never being repaid, Bernanke said, "I think it's a good thing we have student loans, obviously. It wouldn't be good if people couldn't invest in their own human capital."
But he added that, "It is the case that student loan debt, which is not dischargeable in bankruptcy, for example, is a burden which is affecting the ability of many young people to buy a home, and affecting other purchasing decisions they may make."
Bernanke went on, "to the extent that there's a lot of student loan debt held by people not working, it's obviously a drag on recovery." But he said he does not "see it as a source of financial crisis, per se, simply because it's primarily the asset of the federal government and not of financial institutions."
"So what it could be, ultimately, is another fiscal cost, but I don't see it affecting the stability for the financial system any time soon," he said. "But it is a serious issue."
In earlier prepared remarks, Bernanke said the Fed and the Federal Deposit Insurance Corp. are working together to implement a new regime for "resolving" insolvencies among the largest banks.
He said it is critical to rein in the "moral hazard" of excessive risk-taking by "systemically important financial institutions," or SIFIs, and thereby make financial crises "less likely" and "less costly."
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