The effects of the subprime bubble-bust worldwide are making it harder for U.S. households to recover, according to Federal Reserve Bank of New York CEO William Dudley.

While speaking at the National Association for Business Economics, Dudley said the subprime bubble had far-reaching consequences outside the U.S., derailing Europe and causing America to lose out on the potential for rising export activity to make up for slowing domestic consumption.

Instead, the housing crisis, which had links to global banks, derailed many economies, making it difficult to gain on exports.

"In my view, the primary reason for the poor performance of the U.S. economy over this period has been inadequate aggregate demand," Dudley said. "There are several explanations for this. Although some were well-known earlier, others have only become more obvious as the recovery has unfolded."

The bust remained concentrated in housing because low interest rates that would normally lead to a recovery had little impact on housing because high inventory levels and tighter mortgage underwriting made an uptick in home purchases difficult, he explained.

As for how the Fed will exit its latest round of accommodative monetary policy, Dudley said a little humility is in order since it's unknown how the market will respond to the effects of less accommodative policies.

"To reduce this risk, the FOMC has published a set of exit principles. These principles lay out a roadmap about how exit is likely to occur: First, the end of reinvestment of maturing securities; second, an increase in short-term interest rates, and, third, the gradual sale of mortgage backed securities to shrink the magnitude of excess reserves in the system and ultimately to restore the Fed's balance sheet to a predominately all-Treasury portfolio," Dudley explained.