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Saturday, September 01, 2007

Jackson Hole: Quotes on Housing

by Calculated Risk on 9/01/2007 08:37:00 PM

Here are some articles and quotes from the Jackson Hole conference.

Professor John Taylor (of the Taylor rule fame) blames the housing bubble on the Fed. From Reuters: Ultra-low Fed rates stoked housing boom: Taylor (hat tip Kevin)

In rare public criticism of Alan Greenspan, former U.S. Undersecretary for International Affairs John Taylor said on Saturday that ultra-low Federal Reserve interest rates had stoked the U.S. housing boom and subsequent bust.
"A higher federal funds path would have avoided much of the housing boom," Taylor said, drawing on a model he designed to simulate housing activity if the Fed had raised rates instead of aggressively easing borrowing costs.
And Reuters quotes economist Martin Feldstein: U.S. at risk of recession from housing (hat tip risk capital)
The weak housing market could topple the country into a full-blown recession and the Federal Reserve should slash interest rates aggressively, one of the country's most prominent economists warned on Saturday.
Feldstein, who was one of the front-runners for the top job at the Fed until Bernanke was picked for the post, saw three challenges to U.S. growth from housing: declining home prices; the subprime mortgage crisis; and weakening home equity withdrawal and refinancing.

Those three problems "point to a potentially serious decline in aggregate demand," he said. "The multiplier effect of home price declines and declines in consumer spending could push the economy into recession."
And from MarketWatch: View from Jackson Hole is hazy and gloomy (hat tip FFDIC)
David Hale, an economist and a regular at the Jackson Hole conference, called the current environment "a crisis of information."
Mickey Levy, chief economist at Bank of America Corp. pointed out that the tone of the Jackson Hole conference was one of "uncertainty with risks to the downside."

"I am virtually certain [the Fed] will ease on Sept. 18," Levy said, adding that the move would be enough to keep the economy from going into recession.

But the risks of a recession are clearly higher than they were only one month ago, economists said.

Hatzius agreed there was a "significant risk" of recession, putting the odds at one in three. In addition, the economist said that the Fed would have more data by the time of its next meeting on Oct. 30 and 31, and that future moves would depend on the outlook.
Gramley, the former Fed governor, said that the odds of a recession are somewhere between 33% to 50%. "This is a severe problem which will have to be dealt with," he said.