By Steven K. Beckner

(MNI) – Federal Reserve Governor Sarah Raskin Wednesday emphasized
the Fed’s duty to promote growth and employment in an economy still in a
“lingering recession.”

Raskin called the May employment report “bleak” and said the rise
in the unemployment rate to 9.1% “doesn’t fully capture the scope” of
unemployment. She said millions of Americans are “in danger” financially
speaking, having lost both income and net worth and are facing financial
“exclusion.”

The former Maryland Commissioner of Financial Regulation, who
joined the Fed Board of Governors Oct. 4 last year, said the Fed has an
“imperative” to promote economic growth but also to foster “financial
inclusion.”

It was one of the more gloomy appraisals of the economy heard from
any Fed policymaker lately. Chairman Ben Bernanke admitted in his press
conference following the Federal Open Market Committee a week ago that
he does not fully understand why the economy is so sluggish and said
some of the “headwinds” to growth may be “longer lived.” But he
predicted the economy will rebound in the second half and grow at a
better pace next year.

But while her colleagues typically talk about the pace of recovery,
Raskin employed a different “R” word: “recession.”

“One of the tragedies of our current lingering recession is that so
many young Americans have not been able to experience the thrilling rite
of passage that comes with finding a stable and decent-paying job,” she
said in remarks prepared for delivery at a New America Foundation Forum
in Washington, D.C. “And, of course, even beyond the young, there are
millions of Americans stuck in unemployment lines desperate to find a
way back into the productive economy.”

Although her main theme was not employment but providing access to
affordable credit and other financial services, Raskin told her
audience, “The question of employment is not our focus today, but we
should pause to underscore the promotion-of-maximum-employment
imperative of the Federal Reserve’s dual mandate.”

The other part of the Fed’s dual mandate, of course, is to ensure
“price stability,” i.e. to contain inflation, but Raskin made no direct
mention of that.

She expanded on her conception of what the Fed’s main job is later
in her speech. “Congress created the Federal Reserve with a view that it
should focus on economic growth, so the Federal Reserve has a clear
interest in promoting a meaningful, broad recovery that is conducted in
a safe and viable manner.”

The May employment report showed a disappointing 54,000 gain in
non-farm payrolls as well as 13.9 million Americans formally unemployed
or 9.1%.

Not only was that report “bleak,” Raskin said “the headline
unemployment numbers don’t fully capture the true scope of the
unemployment problem.”

“There are an additional 8.5 million workers who are
‘part-time-of-necessity’ or ‘underemployed’ because their hours have
been cut back or they are unable to find a full-time job,” she noted,
adding that “there are also 1.4 million workers who are ‘marginally
attached’ to the labor force because, while wanting a job, they have not
searched for one in the past four weeks; and there are 822,000
‘discouraged’ workers who have given up searching for employment because
they do not believe any jobs are available for them.”

In addition to those currently collecting unemployment insurance
payments,” she said “the underemployed, the marginally attached, and the
discouraged — all of whom are primarily concerned about the security of
their jobs, wage growth, housing, and the rising cost of living — are
also suffering from exclusion from the economy of work.”

And she said those millions of people are “doubly challenged by
their ability to access reasonably priced financial products with safe
features that encourage savings. Americans have several core financial
needs.”

Raskin said “the economic crisis has undermined financial inclusion
for many Americans.” Pointing to an 18% drop in median net worth for
Americans in the bottom fifth of income distribution and a 21% drop in
the “middle” group, she said, “Combined with widespread unemployment,
housing and stock price declines, and increasing rates of mortgage
defaults, foreclosures, and bankruptcies, the assets of many American
families have been significantly eroded.”

“In addition to losing the value of their savings and assets, a
significant number of low- and moderate-income families have become
financially marginalized as a result of the economic crisis,” she
continued. “This combination of economic insecurity and financial
marginalization has placed more low- and moderate-income families right
at the well-lit front doorsteps of payday lenders and other alternative
financial service providers to try to meet their financial needs.”

“In sum, the financial crisis has left many lower- and
moderate-income Americans in danger,” she added.

Promoting “financial inclusion” is “essential because it bolsters
American consumption and savings, which drives macroeconomic growth,”
she said. “In order to promote efficient economic growth and stability,
Americans must have safe and affordable access to the tools necessary to
function in the modern economy.”

** Market News International **

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