Federal Reserve chair Janet Yellen has warned that recent weakness in the US housing sector could hold back recovery in the remainder of the year.
Speaking before the US Congress on Wednesday, Yellen added that the slump in sector activity, apparent since the beginning of the year, may not rebound as quickly as many expect.
‘The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery,’ said Yellen. ‘Readings on housing activity... have remained disappointing so far this year and will bear watching.’
She added that the US recovery was likely to require continued support, although the Fed still expected the economy to expand at a ‘somewhat’ faster pace than last year.
Following a US GDP reading of just 0.1% in the first quarter, well below expectation of 1.2%, Yellen said that forward indicators suggested a relatively rapid bounce in Q2.
While high-yield issuance and loan syndication had increased in recent months and underwriting terms eased, she said that in absolute terms activity remained historically moderate.
‘Some reach-for-yield behaviour may be evident,’ but remained contained overall. ‘While some financial intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date, particularly at the largest banks and life insurers.’