Three Federal Reserve policy makers said the U.S. government should try new ways to spur the housing market without agreeing about how much more the central bank needs to do to bring down interest rates.
New York Fed President William C. Dudley said in New Jersey yesterday 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 S. Bernanke this week urged lawmakers to do more to revive the housing market, calling it an impediment to the economic recovery. He delivered a 26-page staff report to Congress outlining possible solutions.
“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 & Co. who is now a professor at California State University-Channel Islands in Camarillo.
The chairman and his colleagues “are trying to jawbone” the Obama administration, Congress, Fannie Mae and Freddie Mac to support the housing recovery, Sohn said.
Jobless Rate Falls
Fed officials who spoke yesterday gave little indication that their monetary-policy views were swayed by yesterday’s Labor Department report showing that the jobless rate fell to 8.5 percent in December, the lowest since February 2009. Payrolls rose by 200,000 workers, more than economists forecast.
The Standard and Poor’s 500 fell 0.3 percent to 1,277.81 in New York, while yields on 10-year Treasuries fell four basis points to 1.96 percent.
The central bank’s policy-setting Federal Open Market Committee meets Jan. 24-25 in Washington, where governors and regional-bank presidents will for the first time present projections for the benchmark federal funds rate. The Fed signaled this week in minutes of December’s session that it may alter language saying rates will probably stay near zero until at least mid-2013.
The central bank cut its main interest rate almost to zero in December 2008. Bernanke has said the Fed is considering additional actions, including a third round of large-scale asset purchases.
Dudley, 59, a former Goldman Sachs Group Inc. economist who serves as FOMC 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 in Iselin.
Rosengren, speaking in Hartford to the Connecticut Business & Industry Association and MetroHartford Alliance, said buying more MBS “would in my view help provide a more rapid recovery in housing, by reducing the costs of refinancing or purchasing new homes.”
“Of course, these Fed actions would be even more effective if accompanied by fiscal policies designed to speed the recovery in housing,” said Rosengren, 54, who has previously supported additional action by the FOMC.
Duke, 59, said in Richmond that “forceful and effective housing policies have the potential to significantly influence the speed and strength of our economic recovery.”
Evidence including advertising and employer surveys “suggests that the job market is not poised for marked improvement,” Duke said. “While the trend in unemployment will be gradually lower, the path to get there might be choppy.” She didn’t voice support for additional monetary easing while reiterating the FOMC statement that policy makers “are prepared to employ our tools as appropriate to foster economic recovery in a context of price stability.”
Fed Governor Sarah Bloom Raskin, the only official not to discuss housing in a speech yesterday, said the central bank is taking the right steps to lower borrowing costs and address “stubbornly high” unemployment.
“Although the pace of employment growth has picked up in recent months and the unemployment rate has fallen some, the labor market remains quite weak,” she said to bankers in Baltimore.
Raskin has a speech scheduled for tomorrow on the topic of mortgage servicing and foreclosure challenges, according to the Fed.
Home construction is running at about one-fourth of its peak last decade, and the number of mortgages becoming delinquent “remains very elevated” and rose in the third quarter, Dudley said. He cited data from the Mortgage Bankers Association of America showing that there were about 1.5 million first lien mortgages 90 or more days past due. Another 2 million were in “some stage of foreclosure,” Dudley said.
“There’s no question housing continues to be a very, very weak part of the economy,” said James Hamilton, an economics professor at the University of California, San Diego, and former Fed research adviser and visiting scholar. “The Fed is raising the possibility for Congress to consider legislation outside what monetary policy can do.”