Federal Reserve Governor Elizabeth Duke said the economy will continue on a gradual path of recovery this year and that the current stance of monetary policy is “appropriate.”
“My forecast is for the unemployment rate to gradually and perhaps fitfully move lower and for inflation to settle over coming quarters at or below levels consistent with the Federal Reserve’s dual mandate,” Duke said in the text of her remarks to the Virginia Bankers Association and Virginia Chamber of Commerce in Richmond.
Employers added 200,000 jobs to their payrolls in December, the most in three months, a Labor Department report showed today. The jobless rate declined to 8.5 percent, the lowest since February 2009, from 8.7 percent in November.
Sustained payroll gains are needed to chip away at the still-high rate of unemployment and support household spending, which accounts for about 70 percent of the world’s largest economy. The labor market figures follow recent data showing increased manufacturing and a rebound in consumer sentiment that show the U.S. is weathering Europe’s debt crisis for now.
Duke said intensifying financial strains in Europe would represent a downside risk to her outlook, while improving consumer access to credit is an “upside risk.”
The Fed governor said that today’s labor data don’t portend a robust job market ahead.
No ‘Marked Improvement’
“The bulk of the evidence, including help-wanted advertising and surveys of employers’ hiring plans, suggests that the job market is not poised for marked improvement,” she said. “While the trend in unemployment will be gradually lower, the path to get there might be choppy.”
Duke said that without stronger job growth, household income may not support sustained increases in spending. Cuts in government outlays will also be a drag on growth, she said.
What’s more, “forceful and effective housing policies” could result in a faster and stronger economic recovery, Duke said.
“Policies that increase credit availability for homeowners or investors seeking to purchase a home or to refinance an existing mortgage would allow more borrowers to access lower interest rates and thus improve the transmission of monetary policy to the economy,” Duke said. “Renewed attention to a broad menu of options to modify existing mortgages would provide aid to struggling homeowners.”
Fed officials have been increasing their calls for government measures to boost the housing market after record-low interest rates failed to spur borrowing.
Federal Reserve Bank of New York President William C. Dudley today called on the government to try new programs to revive housing while saying the central bank may still consider ways to cut interest rates.
The Boston Fed’s Eric Rosengren, in a separate speech today, said the central bank could strengthen the economy by targeting stimulus policies at housing and loans to small businesses.
“Further purchases of mortgage-backed securities would in my view help provide a more rapid recovery in housing, by reducing the costs of refinancing or purchasing new homes,” Rosengren said in the text of remarks in Hartford, Connecticut.
Fed Chairman Ben S. Bernanke this week sent Congress a staff study discussing policy options to help boost the residential real estate market.
The average rate for a 30-year mortgage fell to 3.91 percent in the week ended yesterday, matching the lowest level in records dating to 1971, from 3.95 percent, Freddie Mac said in a statement.
Duke is a past president of the Virginia Bankers Association. Her term as a Fed governor expires at the end of this month.
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