Fed’s Duke Sees Credit Easing Except in Mortgage MarketMichelle Jamrisko and Jeanna Smialek
Federal Reserve Governor Elizabeth Duke said the U.S. economy is strengthening as credit conditions improve in most areas except the mortgage market.
“The economy does seem to be strengthening -- particularly the housing market seems to be recovering at this point,” Duke said today at a Washington conference hosted by the American Bankers Association. “House prices are going up” though “a lot of that has to do with a shortage of houses on the market.”
Duke said “credit issues seem to be receding, and banks’ credit portfolios seem to be getting stronger and stronger and the delinquency ratios, non-performing asset levels seem to all be going down. So things seem to be going in the right direction there.”
The mortgage market is one exception to a general picture of easier credit conditions, Duke said.
She said she sees “evidence of intense competition for loans, and most of you are making all of the loans that you can find to make. The one place that that might not be necessarily the case is in mortgage lending, and mortgage lending is a place where credit conditions really have not loosened at all -- they’ve not loosened in the least bit.”
Duke’s comments come amid a sustained push by the central bank to spur the expansion and reduce unemployment. The Federal Open Market Committee in March reiterated its plan to buy $85 billion in bonds every month until the labor market outlook improves “substantially.” It also pledged to keep interest rates near zero as long as unemployment remains above 6.5 percent and the outlook for inflation is less than 2.5 percent.
Duke told the bankers she understands “how difficult it is to manage a bank in a low-interest-rate environment.”
“Low rates presumably will not last forever, and investment decisions have to be made with an eye toward when rates will ultimately increase,” she said.
“I would very much like to see that rates went higher because the economy was stronger,” she said. “To let rates rise in a very weak economy would further weaken the economy and make the environment that much more difficult.”
Duke backed the central bank’s decisions to begin purchasing $40 billion a month of mortgage-backed securities in September and to add $45 billion a month of Treasury purchases in December. The asset buying has enlarged the central bank’s balance sheet to a record $3.23 trillion.
Duke, 60, was a director at the Richmond Fed from 1998 to 2000. She was appointed a Fed governor by President George W. Bush and took office in August 2008. While her term as Fed governor expired in January, Duke can remain in office until a successor is appointed.