Fed officials focus on housing
Emphasis put on importance of sector to overall economy
Three Federal Reserve policymakers called on the government to try new programs to revive the housing market while differing on whether the central bank should take more steps to cut borrowing costs.
New York Fed President William Dudley said in New Jersey on Friday that “additional housing policy interventions” can help boost growth, even as the Fed should consider further easing. Boston Fed President Eric Rosengren, speaking in Connecticut, took the more aggressive position of supporting the purchase of mortgage-backed securities, while Fed Governor Elizabeth Duke said in Virginia that the central bank’s current monetary stance is “appropriate.”
The comments underscore concerns by Fed officials that they may be reaching the limits of their power to boost growth and lower unemployment through three years of near-zero interest rates and unconventional policy tools. Chairman Ben Bernanke last week urged Congress to do more to revive the housing market, calling it an impediment to the economic recov- ery. He delivered a report outlining possible solutions to the Senate banking and housing panel.
“Bernanke realizes that we need to boost housing, and if housing does not recover, what the Fed does will be for naught,” said Sung Won Sohn, former chief economist at Wells Fargo who is now a professor at California State University-Channel Islands in Camarillo. The chairman and his colleagues “are trying to jawbone” the administration, Congress, Fannie Mae and Freddie Mac to support the housing recovery, Sohn said.
Dudley, who serves as Federal Open Market Committee vice chairman, said that while the housing market is “only one factor behind the frustratingly slow” recovery, it’s an “important one that deserves our attention.”
He detailed options designed to prevent foreclosures, ease refinancing of mortgages and get renters into lender-owned properties.
Even so, “because the outlook for unemployment is unacceptably high relative to our dual mandate and the outlook for inflation is moderate, I believe it is also appropriate to continue to evaluate whether we could provide additional accommodation in a manner that produces more benefits than costs, regardless of whether action in housing is undertaken or not,” Dudley said to a New Jersey Bankers Association economic forum.
Duke said, “Forceful and effective housing policies have the potential to significantly influence the speed and strength of our . . . recovery.”