NEW YORK (Reuters) - The failure of the U.S. housing market to fully respond to the Federal Reserve’s easy money policies remains a headwind to overall economic growth, an influential U.S. Federal Reserve official said on Friday.
William Dudley, president of the New York Fed bank, acknowledged some improvement in housing of late, but said credit availability remains “impaired” and argued that, overall, the pace of the broader U.S. economic recovery has been disappointing.
“While there are several headwinds that have been restraining economic growth, a key impediment is that the housing market has failed to respond fully to the significant easing of monetary policy,” Dudley said at a residential real estate conference hosted by the New York Fed.
A bubble in the U.S. housing market was at the core of the 2007-2009 financial crisis and the lackluster environment that continues to hamper the world economy today.
The Fed has kept benchmark U.S. interest rates ultra low for nearly four years and has bought more than $2 trillion in large-scale assets to kick-start growth and get Americans back to work. It launched a third round of quantitative easing last month and signaled it would keep rates near zero for three more years.
Many economists believe the U.S. housing market has finally turned a corner as prices have started to stabilize, while home sales were around two-year highs in August. But the large overhang of foreclosures and the many people who are underwater on their homes are among the hurdles the sector still faces.
Dudley, who as head of the powerful New York Fed bank has a permanent vote on monetary policy, said “various housing market indicators have looked somewhat better of late,” including home prices.
But he said the absolute level of housing starts remains low and housing market conditions vary across the country, causing problems. “The net result is that while housing’s contribution to growth has finally turned positive, its magnitude is far below that experienced in previous recoveries,” Dudley said.
U.S. growth cooled in the second quarter to a tepid 1.3 percent annual rate, and forecasters do not think the economy is expanding much faster. Yet in a promising sign for the economy, data earlier on Friday showed that the U.S. jobless rate fell to a near four-year low of 7.8 percent last month, from 8.1 percent in August.
Reporting by Jonathan Spicer; Editing by Leslie Adler and James Dalgleish