Philip N Jefferson: US economic outlook and housing price dynamics

Speech by Mr Philip N Jefferson, Vice Chair of the Board of Governors of the Federal Reserve System, at the Mortgage Bankers Association's Secondary and Capital Markets Conference and Expo 2024, New York City, 20 May 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Figures accompanying the speech 

Thank you, Mark, for the kind introduction, and good morning to all of you.¹ I am happy to be here. Today, I will do three things. First, I'll share with you my current outlook for the US economy. Second, I'll discuss my thinking on the current stance of monetary policy. Third, I'll review the dynamics of housing prices which can feed into the persistence of inflation.

My focus on housing price dynamic stems from the role housing plays in the American economy. For most families, a home is their largest-ever purchase and their most valuable asset. Capital markets professionals in real estate finance, like you, are crucial to the smooth operation of the housing sector. Families making housing decisions rely on a healthy and productive housing finance sector.

The housing sector is also one of the most interest rate–sensitive sectors of the economy. As such, it's an important channel of monetary policy transmission. Understanding the various channels of monetary transmission is crucial to fulfillment of the dual mandate given to the Federal Reserve by the Congress: maximum employment and stable prices. This mandate guides my thinking about monetary policymaking.

With that, I'll turn to my outlook for the US economy.

Aggregate Economic Activity

The U.S. economy continues to grow at a solid pace. Adjusted for inflation, GDP was reported to have increased at a 1.6 percent annual rate in the first quarter of 2024. That was a moderation from a 3.4 percent expansion in the fourth quarter of last year. However, private domestic final purchases-which excludes inventory investment, government spending, and net exports and usually sends a clearer signal on underlying demand-grew 3.1 percent in the first quarter. That was about as strong as the second half of 2023.

Indeed, consumer spending has been robust over the past several quarters. Nevertheless, I expect spending growth to slow later this year as restrictive monetary policy weighs on demand, particularly on interest-sensitive spending.