Housing market woes have spread to other sectors of the economy, and despite monetary policy intervention, near-term economic weakness should be expected, Federal Reserve Board vice chairman Donald L. Kohn said yesterday.
“Easier monetary policy will not forestall a period of economic weakness in the near term,” Kohn said in prepared text of remarks made at the University of North Carolina at Wilmington. “Experience teaches us that some time is likely to pass between a decline in interest rates and its positive effect on demand. Once financial conditions change, time is required for individuals to recalibrate, and then execute, their spending decisions. Lower interest rates will not stop, only cushion, the correction in housing markets.”
It will take time, he said, for a return to stronger growth, lower unemployment, lower inflation, and improved flows in financial markets, he said, noting, “adverse risks to this most-likely scenario abound.”
