(Reuters) – The weak housing sector continues to pose a strong headwind to the economic recovery, and the Federal Reserve could potentially do more to drive down mortgage rates to support the sector, an influential Federal Reserve official said on Monday.
William Dudley, president of the New York Federal Reserve Bank, said another round of quantitative easing, or QE3, is one possible option the U.S. central bank has to boost the slow recovery. “I don’t think the Fed has run out of bullets,” he said.
Dudley also warned about “spillover” effects from Europe’s debt crisis, which he predicted would be solved. But his comments on housing in particular could raise the stakes in the debate over what, if anything, the U.S. central bank should do next.
It was the third time in a week that a Fed policymaker highlighted the possibility that the central bank could do more to support the housing market, a persistent drag on the recovery. A glut of foreclosed homes on the market and tight credit have contributed to a sector virtually stuck in the mud and unable to gain traction.
“Breaking this vicious cycle is one of the most pressing issues facing policymakers,” Dudley said in a speech at Fordham University’s Gabelli School of Business.