During an address to a group of macroeconomic forecasters today, Federal Reserve Vice Chair for Supervision Michelle Bowman outlined what she sees as the primary challenges for monetary policy in the years ahead. Among the challenges she detailed was a “sharp housing market correction.”
“Although supply factors have been weighing down on housing activity for a while, demand factors appear to have recently become the dominant force,” Bowman explained. “Elevated mortgage rates may be exerting a more persistent drag, as income growth expectations have declined while house prices remain high relative to rents. Given very low housing affordability, existing home sales have remained depressed despite higher inventories of homes for sale. I am concerned that declines in house prices could accelerate, posing downside risks to housing wealth and inflation in the years ahead.”
The other monetary policy challenges she addressed were the potential for supply shocks, the transmission of monetary policy to long-term interest rates, the artificial intelligence investment boom, and the ways she sees these factors affecting the neutral rate of interest.
“While we are making progress in a number of areas, there is much left to do,” she said. “Some of this work will include improving the mergers and acquisitions process; reviewing the appropriateness of capital requirements for all banks, including revising the community bank leverage ratio and approaches for mutual banks; and addressing payments and check fraud. We are continuing to enhance examiner training and development, and we will continue to prioritize economic growth and safety and soundness in the bank regulatory framework.”
