NEW YORK – The moderate recovery will continue this year, but a housing plan put forth by the Federal Reserve in a white paper this week could help boost the economy, Federal Reserve Board Governor Elizabeth Duke said Friday.
Duke said the unemployment rate will drop, although its downward path may be “choppy.”
“In this environment, I believe that the current stance of monetary policy is appropriate,” she told the Virginia Bankers Association/Virginia Chamber of Commerce, according to prepared text of her speech, released by the Fed.
Still, she noted, the outlook is “very uncertain” with “considerable risks, on both the downside and the upside.”
Spillover from Europe is the major downside risk, while “the steadily improving consumer debt picture” could be a positive. “And any acceleration in the repair of housing and mortgage markets could add even stronger momentum to recovery,” Duke said.
“However, the extraordinarily tight standards that currently prevail reflect, in part, new obstacles that inhibit lending even to creditworthy borrowers,” she added. “These tight standards can take many forms, including stricter underwriting, higher fees and interest rates, more stringent documentation requirements, larger required down payments, stricter appraisal standards, and fewer available mortgage products.”
Tight standards also make refinancing difficult.
While no single policy alone will repair the housing market, Duke suggested, “policymakers will need to decide the future role, if any, that the government will play in housing finance” and “how to best wean the GSEs away from government conservatorship.”
She noted the Fed this week published a white paper that weighs benefits and trade-offs of policies to help the housing market.
