JULY 30, 2010

By Josh Silverman, Director, Term Funding & Risk Management

The National Association for Business Economics (NABE) recently released its quarterly business conditions survey, and the results show that hiring improved during the second quarter, although the pace of growth slowed.

The NABE’s July 2010 Industry Survey report was based on responses from 84 NABE members regarding business conditions in their firm or industry. The key takeaway from the report is that more firms are planning on hiring, but the pace of economic recovery is expected to continue to slow in the months ahead. Highlights from the report include:

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JULY 16, 2010

FINANCIAL FEATURE

By Josh Silverman, Director, Term Funding & Risk Management

Even though the Federal Reserve continues to hold short-term interest rates at a range of zero to 0.25 percent and the economy is growing, the overall availability of credit continues to be tight—especially for small businesses and consumers. Fed Chairman Ben Bernanke is particularly concerned about the lack of available credit for small businesses, which account for about 60 percent of job creation.

In a speech at the Fed’s forum on restoring credit to small businesses, Bernanke said the scarcity of credit is slowing the economic recovery and keeping the unemployment rate close to 10 percent. During a typical recovery, small businesses create jobs at a faster pace than large firms. That has not recently been the case, in part because many small businesses cannot get loans.

In his prepared remarks, Bernanke said “making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges.” Bernanke also noted that “the formation and growth of small businesses depends critically on access to credit.” According to a recent bank survey by the Fed, however, lending standards among local banks—the lending institutions that small businesses rely upon—remained restrictive during the first quarter. Interestingly, the survey also revealed that major banks eased loan conditions to large firms during the first quarter, indicating that credit for big, investment-grade companies is becoming more available.

Banks say they are restricting credit because of an uncertain regulatory climate pending the passage of the U.S. financial reform bill and the likelihood of new capital requirements from international regulators. Additionally, some lenders have said current lending standards reflect more normal conditions following a period of lax standards. Demand for credit also has been depressed, with a still-fragile economy making many small businesses reluctant to hire and invest. It is a challenging cycle, as credit availability needs to improve in order to stimulate the recovery; but weak economic fundamentals are making cautious lenders less willing to supply credit.

MAY 7, 2010

Last week, President Barack Obama nominated Janet Yellen, president of the San Francisco Federal Reserve Bank, to be vice chairman of the Federal Reserve Board, replacing current board vice chair Donald Kohn, whose term expires in June. Obama also nominated an economist and a lawyer to open slots on the seven-member board. If all three nominations are confirmed by the Senate, the Fed board would be at full strength for the first time in nearly four years.

Some news reports speculated the appointment of Yellen may be a bid by the Obama administration to keep short-term interest rates low and spur economic growth. Barclays Capital said Yellen “is believed to be the most dovish” Federal Open Market Committee member and has “openly expressed her concern about the risk of inflation declining rather than rising.”

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APRIL 30, 2010

By Josh Silverman, Director, Term Funding & Risk Management

As widely expected, the Federal Reserve left the federal funds target rate unchanged at a range of zero to 0.25 percent at the conclusion of its two-day Federal Open Market Committee (FOMC) meeting on April 28, and emphasized it will keep rates low for an “extended period.” The Fed continued to reiterate its view that “low rates of resource utilization, subdued inflation trends and stable inflation expectations” are key factors affecting its decision to leave short-term interest rates unchanged.

Not surprisingly, for the third straight meeting, Kansas City Fed President Thomas Hoenig dissented, arguing that the “extended period” language is no longer warranted because “it could lead to the build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the committee’s flexibility to begin raising rates modestly.”

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