Federal Reserve Board Governor Sarah Bloom Raskin Wednesday underlined her support for ongoing aggressive push by the Fed to support economic growth, saying that it will help the recovery gain a more secure foothold, with the measures potentially becoming "increasingly potent" as the housing market rebound continues.
Why? Because the 2008-2009 recession had a disproportionate impact on low- and middle-income American families, the majority of whom have their wealth tied to housing - particularly home prices - she said in remarks prepared for delivery at the Hyman Minsky conference hosted by the Levy Institute.
Many have argued the Fed of pursuing policies that favor a few over the many, but Raskin believes that "accommodative monetary policy that lifts economic activity more generally is expected to increase the odds of good outcomes for American families."
Low- to middle-income families bore the brunt of the recession, and many are still struggling to reduce their debt burdens, she noted, while also seeing the values of their homes plummet.
"Arguably, the FOMC's conduct of monetary policy in recent years has in part been designed to address this particular landscape," she said.
"I believe that the accommodative policies of the FOMC and the concerted effort we have made to ease conditions in the mortgage markets will help the economy continue to gain traction," Raskin added. "And the resulting expansion in employment will likely improve income levels at the bottom of the distribution."
The Fed has kept interest rates at exceptionally low levels since late 2008, but Raskin noted that borrowers that have been through foreclosure or have underwater mortgages are less able to take advantage of the lower interest rates, either for home buying or other purposes, reducing the intended impact of the Fed's policies.
However, "as the housing market recovers, though, I think it is possible that accommodative monetary policy could be increasingly potent," she said.
Raskin spent significant time discussing the growing wealth inequality gap in America, and its implications for the macroeconomy.
She argued that rising inequality and stagnating wages have contributed to the "tepid" recovery, noting that in wage gains in particular "have remained more muted than is typical during a recovery."
Going forward, "it is very likely that, for many households, future labor earnings will be well below what they had anticipated in the years before the recession," Raskin predicted.
Raskin also defended the Fed's focus on boosting the housing market and spurring faster job creation, noting that the house price shock and less than rosy employment prospects have households curtailing their spending in order to rebuild their nest eggs, while also trimming their budgets "in order to bring their debt levels into alignment with their new economic realities."
"In this case, the effects of the plunge in net wealth and the jump in unemployment on subsequent spending have been long lasting and lingering," she said.
Raskin also noted that the recovery has also been hampered by a continuation of longer-term trends that have reduced employment prospects for those at the lower end of the income distribution and produced weak wage growth — such as technological advances and globalization.
"Given the long-standing trends toward greater income and wealth inequalities, it is unlikely that cyclical improvements in the labor markets will do much to reverse these trends," she said.
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