Lisa Simpson
Apr 12,2010
In: Finance

Challenges Posing the Economy

Federal reserve chairman Ben S. Bernanke.

The US economy is on the recovery mode. However, Federal Reserve Chairman Ben S. Bernanke, said that unemployment, foreclosures and lack of capital for the growth of small businesses are posing challenges. Ultimately, they could hinder economic growth.

Bernanke said, “We are far from being out of the woods.” True, the crisis would be abated and economic growth could give a spurt to employment, yet there are hurdles. For instance, the real estate sector is still very “troubled” and the commercial sector is plagued by weak hiring. There is a growing concern amongst bank officials that the weak job market and the credit crunch would put a cap on consumer spending. Bernanke said that rates of interest will be very low. The Federal Reserve has also taken certain steps to aid growth.

The Chairman also said, “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.”

Also William Dudley, who is the New York Fed President said the rate of federal funds “needs to be exceptionally low for an extended period to contribute to easier financial conditions to support economic activity.”
There’s a tightening of credit as well. In fact, most consumers are unwilling to take credit. In fact, they want to curb on lending unless the labor market improves.
In fact, borrowing has dipped by $11.5 billion. This hesitation of the people to take more loans and the subsequent decline in credit card borrowing affected the stock markets as well. A financial analyst said, “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,”

The Federal Reserve has also purchased $1.25 trillion of securities that were mortgage-backed. Bernanke said, “We have yet to see evidence of a sustained recovery in the housing market. 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.”

The nation’s “toughest problems” lie in job sector. Although 162,000 jobs were created last month, yet the employment problem remained a high of 9.7 per cent. Bernanke said, “Hiring remains very weak. I am particularly concerned.” This could have long-term impact.