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Archive for June, 2009

Treasury Official Updates Congressional Oversight Panel on the Nation’s Financial System

Posted by Hopeton on June 30, 2009

On June 24 Herbert Allison, Jr., the U.S. Department of the Treasury’s Assistant Secretary for Financial Stability, updated the Congressional Oversight Panel on the department’s efforts to repair the nations financial system. The Congressional Oversight Panel was established by Congress to review the current state of financial markets and the regulatory system

Chair Warren, Representative Hensarling, Senator Sununu and members Neiman and Silvers, Last October, Congress established the Troubled Assets Relief Program (TARP), and gave Treasury the necessary tools to help break a downward spiral in our financial system that was causing tremendous  harm, not only to financial firms of all sizes, but also to ordinary families and businesses across the country.

Herbert Allison

Herbert Allison

Our mandate is two-fold: Stabilize the system while protecting the financial interests of the taxpayer.

Although our work is far from finished, Treasury has accomplished a great deal in a short amount of time. It has:

  • Invested nearly $200 billion in 633 financial institutions through the Capital Purchase Program.
  • Helped to re-start securitization markets, which are vital in enabling consumers and businesses to borrow.
  • Helped begin the difficult, but necessary process of re-making our nation’s auto industry, which is at the heart of our industrial base.
  • Helped tens of thousands Americans stay in their homes by securing modifications of their at-risk loans to lower their monthly mortgage payments and making their mortgages more affordable.

To manage these complex efforts, Treasury has built the Office of Financial Stability from the ground up. Last October, the OFS staff was zero. As of Monday, it numbered 166.

There are tentative signs that the financial system is beginning to stabilize, and that our efforts made an important contribution. Key indicators of credit market risk, while still elevated, have dropped substantially.

More than 30 firms have repaid $70 billion in CPP investments. In addition, the taxpayer has received an estimated $5.2 billion in dividend payments from CPP investments.

There are also some signs that the economy is beginning to mend. Consumer confidence rose to its highest level in eight months in May. Housing starts rose at an annual rate of 17% in May, and house purchases have begun to pick up in some parts of the country.

But our financial system and our economy remain vulnerable, with unemployment still rising, house prices falling and pressure on commercial real estate continuing to build.

This is why we must remain vigilant. We must press ahead with our financial stabilization and our economic recovery efforts.

At the same time that Congress established the TARP, it established the Congressional Oversight Panel, an independent group drawn from both major political parties, Congress, the states and public interest groups to ensure that in every step we take, we keep firmly in mind the best interests of the American people.  I applaud the Panel for its work to date, and look forward to a continued strong relationship.

Let me briefly describe my own background and offer a few thoughts that will guide me in my new assignment.  I believe that my views on finance, management and governance, which have not always been stylish, square with what the crisis has taught us is necessary for a financial system that’s both stable and innovative.

I began my career as an officer in the U.S. Navy, spending four years on active duty, including one year in Vietnam. After business school, I joined Merrill Lynch and spent 28 years there, leaving as president in 1999.

I learned from my experiences at Merrill that the long-term success of financial institutions depends on sound corporate governance, including independent checks and balances, tight control over risk, and executive compensation geared to long-term performance on behalf of clients, as well as shareholders. I believe that I contributed to strengthening Merrill’s governance practices in the 1990s.

Since leaving the firm a decade ago, I’ve led two other major financial institutions through transitions necessary for their long-term success.

In 2002, I became chairman and C.E.O. of TIAA-CREF, a leading provider of retirement and asset management services. We adapted the company to changing markets, created independent risk management and doubled the company’s capital so we could withstand a harsh investment climate. As a result, TIAA-CREF is now one of very few financial companies that carry triple-A ratings. And during my tenure, TIAA-CREF became the first company in the Fortune 100 to allow its stakeholders an advisory role on executive compensation. Last September, I was named C.E.O. of the Federal National Mortgage Association as that company was placed into government conservatorship.

The work of OFS, which I now head, is essential to President Obama’s and Secretary Geithner’s plans for recovery.

Our economy declined sharply last year, in substantial measure, because credit stopped flowing. Without access to credit, small businesses cannot buy the new equipment, raw materials and inventory that they need to expand. Larger businesses cannot make the continuous adjustments required to function in a changing global marketplace.

In overseeing the office, I will keep in mind that ending the financial crisis isn’t chiefly about helping banks. It’s about alleviating the real hardships that Americans face every day. I will strive to be a prudent investor on behalf of the American people; to protect the taxpayers who’ve entrusted us with so much of their money.

In pursuing the goal of being a prudent investor for the public, my top priorities will be the following:

First, I will carefully review the controls over taxpayers’ money, giving special attention to compliance with laws and directives, managing risks and internal audits. I will work closely with your panel and all other oversight bodies.

Second, I will strive to maximize the effectiveness of financial stability programs, restoring soundness to financial institutions and liquidity to our markets.

Finally, I will emphasize transparency and interaction with Congress so that the American people will know what we’re doing with their money; why we’re doing it, and how it’s helping the financial system, the economy and their lives.

Thank you. I look forward to your questions.

As Assistant Secretary for Financial Stability, Allison is responsible for developing and coordinating Treasury’s policies on legislative and regulatory issues affecting financial stability, including overseeing the Troubled Assets Relief Program (TARP).

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Consumer Alert: What’s really behind that tempting CD rate?

Posted by Hopeton on June 30, 2009

The following consumer alert was provided by the Federal Deposit Insurance Corporation (FDIC).

The FDIC has received inquiries and complaints about certain companies advertising above-market interest rates for FDIC-insured Certificates of Deposit (CDs). Some of these ads display the FDIC logo or state “FDIC Insured.” Many of these companies are not FDIC-insured banks. Rather, they are insurance or financial service companies that sell non-insured financial products. The small print in the ads may state that the company is not an FDIC-insured financial institution.

The advertised CDs generally offer above-market interest rates for only a short term, require a minimum amount, and insist that the customer visit a company office. The advertisement’s goal is to attract consumers for the company’s non-deposit products or services. If a customer asks to purchase the advertised CD, the company will direct the customer to a computer terminal in the company’s office to purchase a CD from an FDIC-insured financial institution that accepts Internet deposits. The CD will be offered at a rate lower than advertised. The company typically writes a separate check to the financial institution for the difference between the bank’s rate and the advertised rate for the term of the CD. Both checks are mailed to the bank, and the bank then issues the CD for the increased amount, but at the bank’s lower interest rate.

Things to consider:

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Web Marketing Strategies Focus of June 29 Economic Perspectives

Posted by Hopeton on June 27, 2009

Ian Lurie, President and Elizabeth Marsten, Pay-Per-Click (PPC) Manager of Portent Interactive andAIO book co-authors of Web Marketing, All-in-One for Dummies will be the June 29 guests on Economic Perspectives.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Ian Lurie/Elizabeth Marsten Interview

Lurie and Marsten will discuss:

  • How to use online tools to spread your marketing message,
  • How to establish a strong Web presence,
  • How to promote your site with e-mail marketing,
  • Search engine optimization,
  • Pay-per-click,
  • Social networking

Lurie founded Portent Interactive in 1995, a full service internet marketing agency. His diverse background includes degrees in History and Law, experience as an information designer, graphic designer, marketing copywriter and programmer, two years working in a bicycle shop, and a brief stint as a political hack. As a child he used a TRS-80 Model One to print out fliers advertising his lawn mowing business. The rest is history.

As the Pay-Per-Click (PPC) Manager at Portent Interactive, Marsten oversees all the PPC operations and staff.  She is a regular contributor of PPC best practices on the Portent Interactive blog, along with the worst practices on the PPC spoof blog http://www.ppcvillain.com.

Posted in small business | Tagged: , , , | 1 Comment »

NY Times Economics Reporter to Discuss Life Inside the Great Mortgage Meltdown on KAZI News Magazine June 28

Posted by Hopeton on June 26, 2009

Edmund Andrews, economics reporter for the New York Times and author of Busted: Life Inside the BustedGreat Mortgage Meltdown will be interviewed on KAZI News Magazine Sunday on June 28, 1 p.m. – 1:30 p.m. on KAZI 88.7 FM.  Busted weaves together the author’s own ride to the edge of bankruptcy with the tragicomic stories of his lenders, the Wall Street pros behind them, and the policymakers in Washington who were oblivious until it was too late.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Edmund Andrews Interview

In a startling confession in his book, Andrews admits that while in the midst of an interview with former Federal Reserve System chairman Alan Greenspan about the causes of the mortgage meltdown, he felt “an irresistible urge to spill my guts.”

The story takes Andrews to the offices of Alan Greenspan, the mansions of subprime-mortgage millionaires in southern California, a despondent deal makers’ convention in Las Vegas, and Wall Street.

Andrews has been a reporter for the Hew York Times for 16 years.

Posted in Economy, Finance, Housing, Interview, Radio | Tagged: , , | Leave a Comment »

President Obama’s Speech on Financial Regulatory Reform

Posted by Hopeton on June 20, 2009

On June 17 President Obama announced his plans to reform the regulation of the nation’s financial system.  Enclosed below are the unedited remarks he made at the press conference announcing his plans for reform.

President Obama speaking at June 17 press conference

President Obama speaking at June 17 press conference

Since taking office, my administration has mounted what I think has to be acknowledged as an extraordinary response to a historic economic crisis. But even as we take decisive action to repair the damage to our economy, we’re working hard to build a new foundation for sustained economic growth. This will not be easy. We know that this recession is not the result of one failure, but of many. And many of the toughest challenges we face are the product of a cascade of mistakes and missed opportunities which took place over the course of decades.

That’s why, as part of this new foundation, we’re seeking to build an energy economy that creates new jobs and new businesses to free us from our dependence on foreign oil. We want to foster an education system that instills in each generation the capacity to turn ideas into innovations, and innovations into industries and jobs. And as I discussed on Monday at the American Medical Association, we want to reform our health care system so that we can remain healthy and competitive.

This new foundation also requires strong, vibrant financial markets, operating under transparent, fairly-administered rules of the road that protect America’s consumers and our economy from the devastating breakdown that we’ve witnessed in recent years.

It is an indisputable fact that one of the most significant contributors to our economic downturn was a unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess. A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis — the Great Depression — was overwhelmed by the speed, scope, and sophistication of a 21st century global economy.

In recent years, financial innovators, seeking an edge in the marketplace, produced a huge variety of new and complex financial instruments. And these products, such as asset-based securities, were designed to spread risk, but unfortunately ended up concentrating risk. Loans were sold to banks, banks packaged these loans into securities, investors bought these securities often with little insight into the risks to which they were exposed. And it was easy money — while it lasted. But these schemes were built on a pile of sand. And as the appetite for these products grew, lenders lowered standards to attract new borrowers. Many Americans bought homes and borrowed money without being adequately informed of the terms, and often without accepting the responsibilities.

Meanwhile, executive compensation — unmoored from long-term performance or even reality — rewarded recklessness rather than responsibility. And this wasn’t just the failure of individuals; this was a failure of the entire system. The actions of many firms escaped scrutiny. In some cases, the dealings of these institutions were so complex and opaque that few inside or outside these companies understood what was happening. Where there were gaps in the rules, regulators lacked the authority to take action. Where there were overlaps, regulators lacked accountability for their inaction.

An absence of oversight engendered systematic, and systemic, abuse. Instead of reducing risk, the markets actually magnified risks that were being taken by ordinary families and large firms alike. There was far too much debt and not nearly enough capital in the system. And a growing economy bred complacency.

Now, we all know the result: the bursting of a debt-based bubble; the failure of several of the world’s largest financial institutions; the sudden decline in available credit; the deterioration of the economy; the unprecedented intervention of the federal government to stabilize the financial markets and prevent a wider collapse; and most importantly, the terrible pain in the lives of ordinary Americans. And there are retirees who’ve lost much of their life savings, families devastated by job losses, small businesses forced to shut their doors.

Millions of Americans who’ve worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and by the failure of their government to provide adequate oversight. Our entire economy has been undermined by that failure….Click here to read the rest of speech.

Posted in Credit, Economy | Tagged: | 2 Comments »

Building Customer Loyalty Focus of June 22 Economic Perspectives

Posted by Hopeton on June 19, 2009

Dazzling customer service is critical to business success, especially during a time when customers have higher expectations than ever about what they’ll get for their hard-earned dollars.   You can get the inside scoop from customer loyalty experts, Chip Bell and John Patterson, whom will be the guests on the June 22 edition of Economic Perspectives. TO LISTEN TO THIS INTERVIEW CLICK HERE: Chip Bell/John Patterson Interview.

Bell and Patterson have a combined 50 years of experience going into companies like Ritz-Carlton, McDonald’s, Universal Orlando, Harley-Davidson and USAA and reinventing how they handle and communicate with their customers.  They are the authors of TAKE THEIR BREATH AWAY: How Imaginative Service Creates Devoted Customers. Bell and   Patterson say that the key is offering imaginative service – creating one-of-a-kind experiences that turn “just satisfied” customers into fervent lifetime advocates – regardless of the climate or competition.

Some of the issues covered in the interview will include:

  • What struggling companies can do now to turn the tide on their shrinking customer base, including how to mobilize customers into a powerful sales force, turn mistakes into devotion-building opportunities, and rebuild trust with lost clients
  • How “value-unique” service can help companies grow their business and energize  employees even as tight budgets force them to cut staff and stop costly value-added services
  • The essential formula for creating a no-fail execution plan that has insight into client needs, the foresight to manage potential threats before they appear, and a laser spotlight for success
  • How social networks like Twitter and Facebook are changing the landscape of customer service, as companies like Southwest react directly to customer Tweets and posts.

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It’s Not About the Coffee: Former Starbucks Executive on June 15 Economic Perspectives

Posted by Hopeton on June 14, 2009

Former Starbucks International president Howard Behar will discuss his principles for business It's_Not_AboutThe_Coffeesuccess on the June 15 edition of Economic Perspectives on KAZI 88.7.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Howard Behar Interview.

Behar, who served on the board of directors of Starbucks from 1996 to 2008, is the author of It’s Not About the Coffee: Lessons on Putting People First from a Life at Starbucks.  During his many years as a senior executive at Starbucks, Howard Behar helped establish the Starbucks culture, which stresses the importance of people over profits. He coached hundreds of leaders at every level and helped the company grow into a world-renowned brand. Now he reveals the ten principles and the memorable wisdom that guided his leadership and success—and not one of them is about coffee.

“It is my humble but firm belief that it is people—in the best of times, and especially in the hardest times—who will inspire you, sustain and grow your organization, and get you through. As I’ve learned throughout my career, and my own trials and tribulations in leading myself and others, the easy high-flying times are guaranteed not to last. Ups and downs, even severe ones, are part of both the economic and human cycles,” wrote Behar in his book.

Behar joined Starbucks in 1989 when the company had just begun to venture outside the Northwest region. Initially serving as vice president of sales and operations, he grew the retail business from 28 stores to more than 400 stores by the time he was named president of Starbucks Coffee International in 1995. Under Behar’s leadership, Starbucks opened its first location in Tokyo in 1996. Following this historic opening, over the next three years he introduced the Starbucks brand across Asia and the United Kingdom. After a two-year hiatus, he returned to Starbucks as President of Starbucks North America until his retirement in January 2003.

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Banking Regulator Calls for More Consumer Protections on Reverse Mortgages

Posted by Hopeton on June 8, 2009

From the media department of the Office of the Comptroller of the Currency (OCC).  The OCC is responsible for chartering, regulating, and supervising all national banks and the federal branches and agencies of foreign banks.

Comptroller of the Currency John C. Dugan warned in a speech at the American Bankers Association Regulatory Compliance Conference on June 8th that reverse mortgages pose significant compliance risks and said regulators should get out in front of this issue, before real problems develop, so that these loans are made “in a way that is prudent for both lenders and borrowers.”

John Dugan

John Dugan

 “While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages – and that should set off alarm bells,” Comptroller Dugan said.  The experience with subprime mortgages “clearly demonstrates the link between compliance and safety and soundness.”

The Comptroller said the regulatory agencies should ensure that interagency guidance being worked on is sufficiently robust to ensure that consumers are adequately protected, and he said the OCC would examine national banks to ensure compliance with the guidance as well as relevant existing regulations.  But he said it may turn out that guidance alone is not enough to address the consumer protection issues surrounding this new product.

“In these circumstances, more definitive regulatory standards may need to be adopted, and the OCC is prepared to do that – even if the standards we advocate initially apply only to reverse mortgage lending by national banks,” he said in a speech to a regulatory compliance conference sponsored by the American Bankers Association.

Reverse mortgages provide a source of income or line of credit to elderly homeowners by allowing them to tap the equity in their home without having to sell or move out of the home.  The underwriting on these loans is nontraditional since no repayment is required until the homeowner dies, permanently moves out of the home, or fails to maintain the property or pay property taxes.  If the home is sold to repay the loan, the borrower is not responsible for any loan amount above the value of the home.  Any remaining equity above the amount due belongs to the borrower or the borrower’s heirs.

While some lenders offer their own proprietary products, 90 percent of all reverse mortgages are insured by the Department of Housing and Urban Development’s Federal Housing Administration, and known as “home equity conversion mortgages,” or “HECMs.”

Mr. Dugan said the ability of consumers to access their home equity through immediate and large lump sum payments can pose substantial risks.  For example, lenders may simultaneously and aggressively market investment, insurance, or annuity products or, worse, attempt to condition loan approval on the purchase of such products.  Likewise, with access to large lump sums upon closing, elderly borrowers can be particularly vulnerable to coercive sales of annuity and long term care insurance products that are expensive and may not be appropriate to their needs.

“Another risk is that reverse mortgage borrowers, because they have no immediate repayment obligations, may overlook substantial fees that are attached to the loan,” Mr. Dugan said.  “And consumers who spend their loan proceeds quickly or unwisely may end up short of the funds they need for home maintenance or property taxes, with disastrous consequences:  the failure to make those payments can result in foreclosure.”

The Comptroller also expressed concern about misleading marketing claims, especially if the product’s incentives and fees put more of a premium on making the loan than on ensuring it is appropriate for the borrower.

“Even when consumers are not subject to misleading or deceptive marketing, they still may have a hard time understanding the complex nature and costs associated with reverse mortgages,” he said.  “If a consumer doesn’t fully understand how much the loan will cost, how much can be borrowed, or all the circumstances under which the loan can become due, then the risk increases for a transaction that is not appropriate to the consumer’s needs.”

The OCC already has regulations in place to deal with deceptive marketing, the Comptroller said, and the OCC “will use this authority to require immediate correction of any potentially misleading marketing claims by a bank in connection with reverse mortgage products.”

The OCC will also use existing authority to ensure that national banks do not condition the availability of a reverse mortgage on the borrower’s purchase of certain nonbanking products, such as an annuity or life insurance.

Mr. Dugan said one area that deserves particular attention is whether to impose additional requirements with respect to escrows of taxes and insurance.  Nonpayment of taxes or insurance can trigger foreclosure.  However, the new Federal Reserve Board escrow requirements for “higher-priced” mortgages do not apply to reverse mortgages, and HUD does not require escrows to be established in connection with HECMs.

“Given the predominance of the HECM product in reverse mortgage lending, I think it would be a major step forward for HUD to issue guidelines or requirements addressing the escrow issue for HECMs, and I would like to begin a dialogue with them on the issue,” he said.  “Once they set the standards for escrows, we would ensure that they are followed by national banks for HECM products, and would ensure – by regulation, if necessary – that comparable standards apply in connection with proprietary reverse mortgages offered by national banks.”

In closing, Comptroller Dugan said that while much attention still needs to be focused on dealing with the economic downturn, regulators can’t afford to ignore consumer issues.  “We need to be on constant alert to emerging risks and vigilant in our regulatory compliance responsibilities,” he said.

Posted in Banking, Credit, Finance | Tagged: , , | 1 Comment »

Succeeding As an African American Screenwriter in Hollywood

Posted by Hopeton on June 5, 2009

Hollywood screenwriter and novelist Attica Locke will discuss making it as an African American in Hollywood and what inspired her to write her first novel, Black Water Rising, on the June 8 edition of Economic Perspectives on KAZI 88.7FM.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Attica Locke Interview-Economic Perspectives.

Black Water Rising was recently named “Best Debut Crime Novel of 2009” by Booklist.  The lives of Attica’s parents as college activists whom made a successful transition into working professionals, helped inspire Black Water Rising.

Attica Locke

Attica Locke

Attica-BlackWater_hc_c“In both my parents’ lives, in their hearts, in their quietest moments, there was a palpable sense of melancholy, a sense of loss that the times didn’t make a lot of space for. In the early Reagan era, the whole country was caught up in a collective fit of amnesia over the wounds and hurt feelings of the 1960s and ‘70s. And no place more so than Houston, Texas, which in the early ‘80s was awash with oil money and a blind, almost arrogant sense that the future held nothing but promise,” writes Attica on her web site.

Attica also will be interviewed exclusively about Black Water Rising on KAZI’s Sunday News Magazine, June 7, 1:15 p.m.-1:30 p.m.

A native of Houston, Texas, Attica has worked in both film and television for over ten years. A graduate of Northwestern University, she has written movie scripts for Paramount, Warner Bros., Disney, Twentieth Century Fox and Jerry Bruckheimer films, as well as television pilots for HBO, Dreamworks and Silver Pictures.

Attica was a fellow at the Sundance Institute’s Feature Filmmaker’s Lab and most recently completed an adaptation of Stephen Carter’s The Emperor of Ocean Park. She is member of the Writers Guild of America, west, and is currently at work on an HBO miniseries about the civil rights movement, based on the writings of historian Taylor Branch. Attica lives in Los Angeles, California, with her husband and daughter.

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Federal Reserve Chairman: Economic Contraction May Be Slowing

Posted by Hopeton on June 4, 2009

Federal Reserve Chairman Ben Bernanke presented testimony before the Budget Committee of the U.S. House of Representatives on current economic and financial conditions and the federal budget on June 3.  Enclosed below are his remarks on the economic condition of the U.S.

Economic Developments and Outlook
The U.S. economy has contracted sharply since last fall, with real gross domestic product (GDP)

Ben Bernanke

Ben Bernanke

having dropped at an average annual rate of about 6 percent during the fourth quarter of 2008 and the first quarter of this year. Among the enormous costs of the downturn is the loss of nearly 6 million jobs since the beginning of 2008. The most recent information on the labor market–the number of new and continuing claims for unemployment insurance through late May–suggests that sizable job losses and further increases in unemployment are likely over the next few months.

However, the recent data also suggest that the pace of economic contraction may be slowing. Notably, consumer spending, which dropped sharply in the second half of last year, has been roughly flat since the turn of the year, and consumer sentiment has improved. In coming months, households’ spending power will be boosted by the fiscal stimulus program. Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market, the declines in equity and housing wealth that households have experienced over the past two years, and still-tight credit conditions.

Activity in the housing market, after a long period of decline, has also shown some signs of bottoming. Sales of existing homes have been fairly stable since late last year, and sales of new homes seem to have flattened out in the past couple of monthly readings, though both remain at depressed levels. Meanwhile, construction of new homes has been sufficiently restrained to allow the backlog of unsold new homes to decline–a precondition for any recovery in homebuilding.

Businesses remain very cautious and continue to reduce their workforces and capital investments. On a more positive note, firms are making progress in shedding the unwanted inventories that they accumulated following last fall’s sharp downturn in sales. The Commerce Department estimates that the pace of inventory liquidation quickened in the first quarter, accounting for a sizable portion of the reported decline in real GDP in that period. As inventory stocks move into better alignment with sales, firms should become more willing to increase production.

We continue to expect overall economic activity to bottom out, and then to turn up later this year. Our assessments that consumer spending and housing demand will stabilize and that the pace of inventory liquidation will slow are key building blocks of that forecast. Final demand should also be supported by fiscal and monetary stimulus, and U.S. exports may benefit if recent signs of stabilization in foreign economic activity prove accurate. An important caveat is that our forecast also assumes continuing gradual repair of the financial system and an associated improvement in credit conditions; a relapse in the financial sector would be a significant drag on economic activity and could cause the incipient recovery to stall. I will provide a brief update on financial markets in a moment.

Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, and the unemployment rate is likely to rise for a time, even after economic growth resumes.

In this environment, we anticipate that inflation will remain low. The slack in resource utilization remains sizable, and, notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued. As a consequence, inflation is likely to move down some over the next year relative to its pace in 2008. That said, improving economic conditions and stable inflation expectations should limit further declines in inflation.

To read his entire testimony click here.

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