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We're back again with the president of the Richmond Federal Reserve Bank Jeffrey -- voting member of the Fed's open market committee this year and it's big dissenter the entire year president -- thanks for joining us again live under Fox Business let's continue our discussion.
And talk a little bit more about the economy.
But you you said in the life part of the interview that they obviously the recovery looks weaker now.
Wears -- look like it's going for you.
To to you.
I think we're gonna fluctuate between unsatisfactory.
Growth that maybe 2%.
And 3% I think it's just going to swing between those two rates for a couple of years.
We've got a lot of adjustments under way -- broadly two cents -- structural adjustment that we're grappling with.
One is a -- -- allocation.
The collapse in housing spending on housing.
In the last recession we still haven't reallocate those resources as an economy to productive new uses that we have been.
Overhang of -- -- resources for that unemployment.
And it's affecting a lot of people and it's slowing down growth.
Related to that of course is the is the deleveraging that's going on.
On top of that we've got a significant fiscal adjustment head of us and that's having a demonstrable effect on growth we see.
-- we hear from contacts around our district.
That they they just they they look ahead they think about new projects they've they've got ideas for new factories to build.
And that they just can't do the math they don't know what their health costs care costs are going to be.
They don't know what marginal tax rates are going to be until congress figures out how we're gonna get on -- sustainable fiscal path.
There's going to be this uncertainty that's going to impede growth for some time.
So where you see unemployment.
Headed for the rest of this year for next year has dipped below 8% this year.
I think you'll gradually declined if I -- kind of forecast it would be for under just under eight by the end of the year but there's a lot of uncertainty around that -- I think could be close to send him next year we keep.
That the Fed Chairman.
Has made it pretty clear and your colleagues on the -- -- made it pretty clear that the unemployment rate is the kind of the key.
-- metric here inflation seems to be under control so progress on the jobs front this seems to be.
For future policy and and with unemployment.
But within your own forecast -- -- below 8% that -- sounds like.
Rationale for additional quantitative -- The effective monetary policy on inflation is pretty clear pretty demonstrable pretty well understood there's a broad intellectual goods.
Scientific consensus on that.
About the effects of -- monetary stimulus on growth and unemployment there's much less certainty.
Keep in mind this is a recession it was not caused by -- a monetary policy contraction -- civil monetary expansion.
Isn't from propelling this recovery the way it did in say 1982.
This was caused by structural factors and playing out the structural factors is what's impeding growth.
I I think it's a mistake says to tie or are on monetary policy -- -- it to the -- of the change in the unemployment rate.
I think there's a broader -- of considerations that we have to think about.
You're talking about there's some of the headwinds out there -- housing.
So how do you how how does the housing market get fixed what will be your policy prescription for that.
I think it's just gonna be -- out.
I think it's just gonna take time we have we build more houses.
And we have more houses on hand it would then we want at current prices and current income and and the current configuration of credit availability.
And until we grow our way into those houses there's going to be an overhang of vacant homes that has depressing effect on prices.
And it has depressing -- on construction.
On top of that the composition of the housing stock isn't exactly what we want to either.
It's clear that people.
And I think the so there's a broad shift into residential.
Rental residential market.
And so we don't have houses that are sort of built.
But -- but don't lower mortgage rates which could be in theory.
A result of additional quantitative easing.
Can't lower mortgage rates help.
They're awfully low where they are operating.
And under 4% well under 4%.
They're not gonna get much lower.
I don't think I'm not stimulate the market but it's you know it's it's more a matter of of income in the scale.
Demand relative to the supply of housing.
I don't think you know sort of marginal effects on.
I don't think mortgage rates are what's impeding equating the month -- -- because being them interest rates and mortgage rates one of the reasons why some.
Critics of additional.
Quantitative easing say it will be an effective is because bomb markets flight equality because of Europe.
Have been pushing -- and shall long term rates down anyway attend the ten years a benchmark for mortgage lending has.
What that one point six and potentially headed lower.
What about the interplay of the flight equality with the -- Yeah that's sort of an interesting dynamic community and to some extent that flight to quality is doing that.
You know as providing stimulus -- it's doing to be using force and one presumes that you know given spreads on other sorts of securities.
Riskier securities that is bringing down the whole the whole term structure.
So that raises that in mind might makes it even more questionable why we need further reductions in long term yields.
You know I think it's -- it it.
Our best measures of the likely effects of the kind of programs we've been doing.
You are pretty small relative to the swings we see on the week to week basis I just based -- -- quality.
Last question we do have some news today about.
Europe Spain has formally requested a bank bail out of 100 billion dollars from from the EU.
Is -- Getting its act together is -- containing the debt crisis to hit the -- our live with the move so far.
They've they've got a lot of work to do -- that they're they're doing two things at once cleaning up.
Ex post after the mess caused by the all the implicit guarantees they had an effect in trying to design an explicit.
System to contain moral hazard in new world we are fiscally they're backing each other and and you can see why some players some countries in Europe are going to be reluctant.
Help clean up the last mess until they know what the rules of the game in the new system going to be there.
-- -- president of the needs of the Richmond Federal Reserve thanks for joining Fox Business -- my pleasure and.
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