Rosengren sees limited housing recovery slowing overall growth
One Federal Reserve official doesn't expect the housing market to spur economy growth, as it has in prior recoveries, and he defended the central bank's monetary and fiscal policy decisions as necessary and appropriate. Eric Rosengren, president of the Federal Reserve Bank of Boston, said Friday some economic indicators show the recovery is finally taking root, and most project GDP growth of about 3.3% this year. Rosengren said he's slightly more optimistic and expects 3.5% to 4% growth, but the unemployment rate is expected to remain higher than 9% all year, placing tremendous stress on the recovery. He doesn't expect full employment to return for at least another four years. He also defended the Fed's controversial bond buying program, known as quantitative easing, as "absolutely appropriate" and "deployed in a way that encourages a more robust recovery." In early November, the central bank announced plans to purchase $600 billion of long-term Treasury securities. Some analysts and economists deride the plan as stoking inflation, and some Fed members believe QE2 doesn't provide benefits that outweigh costs. Rosengren doesn't expect housing to provide the same level of economic stimulus that it has in prior recoveries. "In many areas of the country the impaired balance sheets of borrowers, high foreclosures, and high vacancy rates imply a long time before local housing markets normalize," he told those gathered at the New England Mortgage Expo Friday. He said the changed landscape of home mortgages points to continued troubles in the housing industry. "It is striking how the distribution of purchase mortgages has changed," Rosengren said. "Credit standards have tightened, as evidenced by a shift to borrowers with higher credit scores. Given what has happened to housing prices, and unemployment, lenders are presumably more cautious in lending. Far fewer loans are going to borrowers with credit scores below 625, and many more purchase loans are going to borrowers with credit scores above 750. In 2006, about 15% of the purchase loans were to borrowers with credit scores below 625, but by 2010, this fraction had fallen to only 3.5%." Write to Jason Philyaw.