Forecasting modest growth at best in the United States economy, the president of the Federal Reserve Bank of New York called for new measures to help stabilize the nation’s still-sliding housing sector.
Speaking to Fordham University business students and faculty members on Oct. 24, William C. Dudley said that the sagging housing market has become a serious impediment to a robust economic recovery.
Even though mortgage rates are at record lows, said Dudley, refinancing obstacles, limited access to credit and an increasing supply of foreclosed homes glutting the market are taking their toll on Americans. Residential construction is down, and homeowners are consuming less as the decline in housing prices reduces their net wealth.
“Breaking this vicious cycle that we see in housing is one of the most pressing issues facing policymakers,” he said.
Dudley called for removing obstacles that borrowers face in refinancing—a concept that is currently being floated by the federal government’s Home Affordable Refinance Program (HARP). That program would allow homeowners who are current on their mortgage payments to refinance regardless of the debt that they carry.
“A vicious cycle could be replaced by a virtuous circle, in which stabilization in house prices supports spending, growth and jobs,” Dudley said.
Dudley also singled out the end of federal economic stimulus programs, the gridlock in Washington over fiscal policy and the debt crisis in Europe as additional obstacles to economic recovery.
As head of the New York Fed, Dudley reiterated his agency’s responsibility to help shore up the nation’s financial system through informed monetary policy and to track the economies of the metropolitan region.
Citywide, Dudley said, employment fell just 4 percent during the recent downturn, meaning that New York fared better than the national loss rate of 6.5 percent. The city already has regained one half of those lost jobs—ironically not from Wall Street, but from the business services, leisure and hospitality sectors.
The Bronx showed no “net job loss,” he said, largely because it was insulated from the housing crisis since most of its population rents rather than owns. But the Bronx still has a “painfully high” jobless rate of 12 percent, a high delinquency rate on loan payments and a per capita income that is more than one third below the national average.
Recently, Dudley said, the Fed has pledged to keep interest rates low through mid-2013 and to swap short-term government debt for longer-term debt, which should help bring down interest rates. But these, he said, shouldn’t be confused with “fiscal stimulus” measures.
“The actions we have taken will be helpful in supporting growth and jobs,” he said. “However, I don’t think monetary policy should be viewed as all-powerful. To get the strongest possible recovery, we need reinforcing action in areas such as housing and fiscal policy.”
The event was sponsored by the Office of the President and the Dean of the Gabelli School of Business.