This is bad news for housing values. If people don’t have jobs, they can’t afford to pay for mortgages. This reduces demand for homes, which drives down prices, drives down housing values, ending people HELOC (home equity lines of credit), leading to more foreclosures, lower home prices, more foreclosures, defaults…
“While there is considerable uncertainty about the outlook, the balance of evidence suggests that the recovery is gaining momentum. In these circumstances, I believe the process of returning policy to a more balanced weighing of short-run and longer-run economic and financial goals should occur sooner rather than later,” Hoenig said.
“We cannot afford to be short-sighted,” he said.
The Fed cut its benchmark federal funds rate to near zero in December 2008 and created a host of emergency lending facilities and bought mortgage-related to fight the worst recession in more than 70 years. It has pledged low rates for an extended period.
“If we leave it (the fed funds rate) there too long, then we will invite a new set of instabilities or inflation,” Hoenig said in response to an audience question.