On the heels of a bold move by the Fed to keep interest rates low, the president of the Federal Reserve Bank of New York spoke today to more than 200 people at the Morris County Chamber of Commerce's annual “business growth forum” at the Park Savoy, in Florham Park.
Given the weakness in the national economy, William C. Dudley said as he headed into last week's Federal Open Markets Committee, "I judged that if we did not ease monetary policy further, the pace of improvement would be unacceptably low." Last week, the FOMC called for keeping interest rates low at least through mid-2015; Dudley supported the measure because "unemployment remains unacceptably high, with economic risks skewed to the downside."
He said a bright spot in the national economy has been the recovery now under way in the housing market. "Nationally, home prices have stabilized and begun to rise modestly after (falling) roughly 30 percent from their 2006 peak," but he noted that homeowners' net worth remains much below the pre-crisis level.
Dudley said the New York Fed's latest poll of several hundred businesses in the region found, "many report that they did not apply for credit because they were discouraged," though those that didn't apply "have credit profile(s) similar to those firms who successfully sought credit. This finding suggests that the demand for credit could pick up as some discouraged firms learn that they might be able to obtain credit now."
Dudley told the group today that "When we talk to small businesses we see there are two groups. The group that is doing well and has a good track record has not had problems getting credit. Those with impaired credit histories or just trying to get capital to start a business, this is a difficult environment for them. We will see a recovery, but this is a headwind facing the economy."
He said the sources of startup capital for new businesses are family and friends, home equity lines, and credit cards — and there has been a tightening of home equity and credit cards.
During the question-and-answer session, several people cited the burden on savers of the Fed's low interest-rate policy. Dudley said it is not the Fed's plan to keep interest rates low forever: The goal is to enable economic growth that generates employment growth, "then we will normalize interest rates — that is what we are trying to achieve."
New Jersey lost 250,000 jobs in the recession before the state's economy began to recover in November 2010, with less than one in four of those jobs recovered to date — "slightly weaker than the national recovery and, of course, much weaker than I would like to see." He said the state has seen moderate job gains in professional and business services, education, and health and leisure and hospitality, but continues to shed manufacturing jobs and has seen little recovery in construction, with the state's 9.8 percent jobless rate in July higher than the national average.
Dudley told the group that his responsibilities include gathering information about "what is going on the grassroots of our economy," which is why he gets out to meet with groups like the chamber. To that end, today his schedule included meeting with Fox Valve, a Dover-based maker of engineered industrial parts; a roundtable with the local Mexican-American business community; a visit to Picatinny Arsenal, in Rockaway Township, to learn about its role in economic development; a visit to New Jersey Community Capital, to hear about its programs for aiding distressed homeowners; and a speech to faculty and alumni at Montclair State University.