News Column

Reed Questions Fed Chair on Job Creation & Fiscal Stability

July 15, 2014



WASHINGTON, July 15 -- The office of Sen. Jack Reed, D-R.I., issued the following news release:

Federal Reserve Chair Janet Yellen testified today before the Senate Banking Committee about recent improvements in the job market, the path ahead for monetary policy and interest rates, Wall Street reform and financial-stability issues.

While the national unemployment rate has fallen to 6.1% in June from 6.7% in March, Fed Chair Yellen testified: "Too many Americans remain unemployed; inflation remains below our longer-run objective; and not all of the necessary financial reform initiatives have been completed."

U.S. Senator Jack Reed, a senior member of the Banking Committee who has urged Congress to take a more active role in helping job seekers and getting our country back to full employment, asked Chair Yellen to weigh in on how the Fed views the macroeconomic impact of the long-term unemployment crisis.

"You pointed out that one of the mandates of the Fed is full employment. We've seen some progress, but there have been variations regionally," Reed said. "My state still suffers from a significant unemployment crisis. And also underlying the statistic is the persistently high long-term unemployment number. Can you comment about what the Fed is doing to try and address these two specific issues and further comment upon whether the, as I feel, Congress can complement your efforts by reinstating long-term unemployment benefits for these people?"

Yellen noted that nationally, long-term unemployment is at "almost unprecedented levels historically, and the average duration of unemployment spells is extremely, extremely long," but she added monetary policy cannot affect the situation at the level of individual states, and the Fed has no specific tools to target long-term unemployment on its own. She does however expect to see improvements "on all fronts" as the national unemployment rate comes down and the pace of job creation stays on pace or rises.

"You point out the Federal Reserve's monetary policies have limitations, but fiscal policies of the Congress can be much more proactive in terms of, one, unemployment benefits so that these people have some support as they look for, and don't get discouraged, in their quest for jobs, and second, infrastructure and a host of programs. I assume you see these as complementary to your goals and necessary to your goals," Reed pressed.

Yellen replied by noting: "We have a situation where long-term unemployment is far more common in the population and imposing serious, serious tolls," she continued. "Fiscal policy has been, I think CBO would confirm, a significant drag on the recovery." The CBO, or Congressional Budget Office, is a non-partisan federal agency within the legislative branch tasked with providing budget and economic information to Congress. Experts in that office have estimated that failing to renew unemployment benefits for a full year would cost the economy 200,000 jobs.

Rhode Island has been especially hard hit by long-term unemployment, which Reed has worked for months to address by pushing to restore emergency unemployment insurance that expired on December 28, 2013. The U.S. Senate passed the fully offset bipartisan Reed-Heller bill to renew unemployment insurance; however, the U.S. House Republican leadership refused to bring the bill up for a vote. Senators Reed and Heller then put forth another bipartisan proposal to help job seekers, which was also fiscally responsible, however, lawmakers in both the House and Senate are now finalizing plans to use those payfors to shore up the highway trust fund.

Reed also asked Yellen about the Fed's Independent Foreclosure Review (IFR) and subsequent Payment Agreement between the board and 15 mortgage servicers. Between April 2011 and April 2012, the Office of the Comptroller of the Currency (OCC) and the Fed issued enforcement actions against 16 mortgage loan servicers for inadequate foreclosure and mortgage loan servicing practices, which compelled the servicers to hire independent consultants to conduct comprehensive reviews to help certain homeowners who were in the foreclosure process during 2009 or 2010 and suffered financial injury because of servicer errors or other deficiencies.

"That was scrapped shortly afterwards and essentially went to a direct payment of about $3.9 billion. I am told that that program still has cash on hand, that you haven't been able to reach the people, people who have been receiving checks haven't cashed them or don't intend to. This residual money, can you reprogram to state agencies or local initiatives that are much more effective in getting the money out? Could you consider that?" Reed asked.

Yellen replied that "no decision at all has been made at this point on what to do with residual funds, and so there may be a number of options we've yet -- we've yet to debate that."

Reed encouraged the Fed to get help to consumers in a timely manner, noting "There are states, you know, and regions that need this help, and if you could get the money to the people who can get it out, that would be I think positive."

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Source: Targeted News Service


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