More dramatically, real credit to households continued to decline for about four years and, while it has finally begun to expand, is still well below its pre-recession levels (Figure 2). And only recently-more than five years after the end of the recession-has it attained pre-recession levels (Figure 1). By contrast, in the most recent recovery the real credit outstanding of businesses (corporations and non-corporations) declined for about two years after the end of the recession. Credit is the means through which financial assets accumulated by savers can earn returns by being put to productive uses.īased on data from the Financial Accounts of the United States (Flow of Funds), real credit (that is, credit after taking into account the effects of inflation) to both corporations and households in prior recoveries generally started to grow fairly quickly after the end of the recession.
Credit availability is a crucial ingredient in any advanced economy’s recipe for economic growth because credit can support investment in productive enterprises and can smooth household spending from fluctuations in income. Today, I’d like to consider developments in credit markets in the context of this shallow recovery. The slow growth during the current expansion, what we might call the long shallow recovery, is likely a result of a confluence of many factors including constrained monetary and fiscal policies, demographic factors and economic and financial developments abroad. Even though real GDP growth has picked up some in the past two years, these patterns are still evident (Table 2). In contrast, the contribution from durables consumption, particularly for motor vehicles, was similar to that observed in previous expansions. Among the factors for the slower growth were unusually low contributions from residential investment and from nondurables and services consumption.
Most notably, the pace of growth during the early years of this expansion was well below that of the early years in previous long cycles (Table 1). Using data from the National Income and Product Accounts, this expansion so far has exhibited unusual features compared to previous long expansions. However, as these temporary factors dissipate, economic slack declines further and inflation expectations remain stable, inflation should slowly move up toward the Federal Open Market Committee’s longer-run objective of 2 percent. Because of the recent sharp fall in oil prices and the appreciation of the dollar, inflation will be very low over the coming months. Unemployment should continue to decline and approach 5 percent by late this year. As New York Fed President Dudley noted earlier this month, despite what appears to be a soft first quarter, we expect that real GDP growth will continue over the next couple of years at a similar rate, supported by solid underlying fundamentals and accommodative financial conditions. Real GDP grew 2.4 percent over the course of 2014. As a reminder, these remarks reflect my own views, and not those of the Federal Reserve Bank of New York or of the Federal Reserve System.įirst, let me say a few words on the current economic outlook. My remarks will concentrate on the role of credit markets more generally during this economic expansion. Good morning and let me welcome you to our press briefing focusing on developments in the student loan market.