Fed vice chairman warns of slow recovery

April 8, 2010 7:22:35 PM PDT
The number two person at the Federal Reserve is in San Francisco, warning that the economic recovery has a way to go.

Donald Kohn, vice chairman of the Federal Reserve, says the pace of recovery is going to be restrained. He shared his economic outlook with Bay Area community leaders Thursday.

"Home sales, which seemed for a time last year to be starting to slowly recover, have stalled recently, and housing starts are only a little above last year's low," Kohn said.

Home loan rates are starting to rise, surging last week to the highest level in eight months. A 30-year fixed rate loan is now averaging 5.21 percent. Credit remains tight, making it difficult for some buyers to get a loan or to meet down payment requirements.

Ben Mangan heads a non-profit group called Earn. It helps low-income workers to save so they can become homeowners.

"The challenges are that we've returned to the standard of people needing to put 20 percent down, that's very hard for lower income workers to do," Mangan said.

Kohn said Americans are learning to save more and spend cautiously, although there was a burst of retail sales last month.

Kohn also had some somber news for laid-off NUMMI auto workers and others hoping to land new jobs.

"The duration of unemployment has been exceptionally long in this business cycle, a development that could erode worker skills and decrease re-employment opportunities," Kohn said. "In addition, it may take some time for those who are unemployed to move or retrain for the new jobs that the recovery will bring."

Kohn is retiring in June. The person many identify as the leading candidate to take his place is Janet Yellen, president of the Federal Reserve Bank of San Francisco.

On the positive side, Kohn said U.S. exports are on the rise. Businesses are also showing signs of spending money for equipment and software.


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