William Dudley, CEO of the Federal Reserve Bank of New York, believes there’s no reason to back down on expansionary monetary policies already implemented by the Fed. He also told a crowd attending a Queens Chamber of Commerce event Friday that the economy is recovering even as housing sector remains a weak spot. The Fed Reserve launched its controversial quantitative easing, or QE2, program back in November. The initiative, which extends through the summer, is designed to grow the U.S. economy by having the Fed purchase $600 billion in Treasury debt. “We provided additional monetary policy stimulus via the asset purchase program to help ensure that the recovery regained momentum,” Dudley explained Friday. “A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course.” The program rallied critics who feared QE2 would stroke inflationary pressures. However, Fed Chairman Ben Bernanke defended the initiative recently, saying inflation levels remain low while overall economic activity has improved. Dudley, who supported the expansionary policies, said while the U.S. growth outlook has improved, housing activity remains sluggish with home prices falling again in many parts of the country. He said this negative trend could be curtailed if stronger job growth allows more young people to obtain the funds needed to leave their parents’ homes. “This trend should provide more support to housing demand,” he said. “And anxieties about the large overhang of unsold homes represented by the foreclosure pipeline may overstate the magnitude of the excess supply of housing. Families that have lost their homes through foreclosures are likely to seek new homes as their income permits, even though many may re-enter the housing market as renters rather than buyers. On the state and local side, a rising economy should boost sales and income tax revenue, and help narrow near-term fiscal shortfalls.” Write to Kerri Panchuk.
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