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Fed Gov. Raskin: Economy Improving, but Tough Issues Remain

Fed Gov. RaskinThe slow economic recovery apparently has gained steam despite some restraints that could persist for some time, Federal Reserve Governor Sarah Bloom Raskin said in a May 16 speech. Federal fiscal policy and inequality in wealth and income are among the problems that could linger, Raskin observed.

Government spending reductions and tax increases will probably "significantly hinder" economic growth this year, Raskin told the Society of Government Economists and the National Economists Club. The Congressional Budget Office has estimated that sharp spending cuts from sequestration, along with tax legislation enacted in January, will reduce gross domestic product growth by 1.5 percentage points this year relative to what the economy otherwise would achieve.

"Looking further ahead, fiscal policy seems likely to remain restrictive at the federal level," Raskin said.

Income, wealth inequality need more study
Meanwhile, large and growing inequality in income and wealth could also continue holding back economic growth, in Raskin's view. This gap, which has been developing for decades, may have worsened the recession. "I think more research is required to determine whether it may also pose a significant headwind to the recovery from the crisis for years to come," she said.

Some signs appear promising for households. In recent quarters, consumer spending, which accounts for about two-thirds of overall demand in the U.S. economy, has continued growing moderately. And on the whole, families have benefited from modest improvement in the job market and rising stock prices, Raskin said. Moreover, resurgent home values have helped some households recoup part of the wealth they lost during the recession.

Potential obstacles loom
However, stubborn challenges remain. "Overall wage growth has been anemic, and many households have not seen their circumstances improve materially," Raskin stated.

Globalization and technological advances continue to change the mix of new available jobs. These factors, Raskin remarked, make it harder for workers who were laid off during the recession to find new jobs as good as the ones they lost.

Statistics tell the story. About two-thirds of all jobs lost in the recession were in middle-wage occupations such as manufacturing, skilled construction, and office administration. But during the recovery these occupations have accounted for less than one-fourth of job growth, Raskin pointed out.

The dynamics are the opposite at the bottom of the pay ladder. Lower-paying service jobs accounted for just one-fifth of job losses during the recession but represent more than half of total job gains during the recovery.

"As a result of these trends in job creation, which could well have been exacerbated by the severe nature of the crisis, the earnings potential for many households likely remains below what they had anticipated in the years before the recession," Raskin said.

May 30, 2013


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