cawacko
Well-known member
When a dove is saying this...
As for CRE numbers prices are off the charts in the Bay Area as buyers chase yield and as one of the leading local economist said at a real estate conference here recently "the bigger the boom the bigger the bust".
I bolded at the bottom the acknowledgement of the Fed's failure in leading to the Great Recession.
A Fed Insider Warns of the Risk of Low Rates
Among concerns behind Eric Rosengren’s call for central bank to act: soaring commercial real-estate market
[/B]The Federal Reserve official who sent the market into its most volatile week of the summer over fears of more aggressive interest-rate increases couldn’t have been a more unlikely candidate for that distinction.
Boston Fed President Eric Rosengren has a well-established reputation as one of the Fed’s leading doves—advocates of easy-money policies aimed at spurring faster economic growth. But more recently he has developed strong concerns that easy money could be letting markets get out of hand the way they did before the financial crisis. And he’s publicly urging his colleagues to act before it gets too late.
“It’s not costless to get the unemployment rate very low,“ Mr. Rosengren said in an interview Sept. 9. “The tools we have are quite blunt,” so it’s better to get ahead of potential problems, he said.
Mr. Rosengren wasn’t explicitly calling for the Fed to raise short-term interest rates at its meeting this Tuesday and*Wednesday. Officials are divided over when to move, making it likely they’ll wait until later this year.*Futures markets put low odds on a rate increase this month.
But he warns that the Fed needs to consider the effects of very low rates in fueling bubbly asset prices. His main source of concern is commercial real estate—the soaring market for office buildings, warehouses and apartment buildings.
According to the Boston Fed, lending to the sector totaled $3.6 trillion as of March, with just over half of that provided by banks and the rest from financial firms such as pension funds and life insurers.
Prices have been rising steadily across the country since the end of 2009, the Boston Fed said.*Mr. Rosengren worries the gains are being driven in part by the scramble for returns in the low-yield world brought about by the Fed and its overseas counterparts, rather than by the fundamentals of supply and demand.
“Should prevailing economic conditions change in response to a large negative economic shock, commercial real-estate prices could decline relatively quickly, leading to large losses at leveraged firms,” he said in an Aug. 31 speech in Beijing. That, in turn, could trigger a broader economic downturn, he said.
The comments that sent markets tumbling came Sept. 9 in Quincy, Mass, when Mr. Rosengren said “a reasonable case can be made” for raising rates to avoid overheating the economy.
Most notably, he made the case for raising rates to head off financial instability despite the fact that this would slow the Fed’s progress toward its goals of fostering job growth and 2% inflation—an unusual statement of the cost-benefit trade-offs.
“A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery,” he said.
The comments augmented investors’ concerns about other central banks’ willingness or ability to keep the easy money flowing. The markets reacted violently.*The S&P 500, which didn’t move by more than 1% for 43 straight days, has since swung by more than that amount four out of the past six trading days. Yields on the benchmark 10-year Treasury note have risen 0.16 percentage point since Sept. 7.
While a rate increase at the September meeting next week isn’t likely, markets and Fed officials do seem on board with a move higher in the coming months, and Mr. Rosengren might be a consistent voice*lashing*them toward action. Forecasters at Wrightson ICAP told clients the Boston Fed leader is likely to argue for periodic rate increases—”a shot across the bows of the market” to “reduce the risk that valuations would reach levels that would ultimately prove destabilizing.”
Mr. Rosengren’s worries about the risks posed by commercial real estate aren’t fully shared by Fed officials. While some acknowledge the sector is getting pretty hot, there’s some skepticism it could create problems for the rest of the economy.
“I don’t dismiss what Eric is suggesting is something we may have to consider in time,” Atlanta Fed President Dennis Lockhart told reporters*Sept. 12. But, said Mr. Lockhart, who had a long career in banking before coming to the Fed, “I don’t think it’s an immediate question.“
Mr. Rosengren hasn’t said when he’d like to see the Fed raise rates. In the interview, however, he said*the Fed has “the luxury…to move in a deliberate and gradual way” and suggested it shouldn’t squander the opportunity.
Mr. Rosengren joined the Boston Fed in 1985 and became its president in 2007. Before that, he was executive vice president for the bank’s Supervision and Regulation Department, a job that informed his current outlook.*Over his career, he has observed multiple chapters in which commercial real-estate problems have caused broader damage,*citing episodes in New England and in Japan.
His current warnings appear to be a tacit acknowledgment of the Fed’s failure to take sufficient action to arrest the housing-market bubble in the years leading up the 2008 financial crisis and the worst economic downturn in generations. Much of that crisis was rooted in lending to borrowers with poor credit histories. Many economists said at the time that type of lending was too small to create real risks for the economy as a whole. They were wrong.
The hawkish edge to Mr. Rosengren’s recent comments marks a notable shift from when he was one of the strongest supporters of aggressive stimulus.
“I don’t worry much about labels,“ he said in the interview.
http://www.wsj.com/articles/a-fed-insider-warns-of-the-risk-of-low-rates-1474196402?mod=e2twe
As for CRE numbers prices are off the charts in the Bay Area as buyers chase yield and as one of the leading local economist said at a real estate conference here recently "the bigger the boom the bigger the bust".
I bolded at the bottom the acknowledgement of the Fed's failure in leading to the Great Recession.
A Fed Insider Warns of the Risk of Low Rates
Among concerns behind Eric Rosengren’s call for central bank to act: soaring commercial real-estate market
[/B]The Federal Reserve official who sent the market into its most volatile week of the summer over fears of more aggressive interest-rate increases couldn’t have been a more unlikely candidate for that distinction.
Boston Fed President Eric Rosengren has a well-established reputation as one of the Fed’s leading doves—advocates of easy-money policies aimed at spurring faster economic growth. But more recently he has developed strong concerns that easy money could be letting markets get out of hand the way they did before the financial crisis. And he’s publicly urging his colleagues to act before it gets too late.
“It’s not costless to get the unemployment rate very low,“ Mr. Rosengren said in an interview Sept. 9. “The tools we have are quite blunt,” so it’s better to get ahead of potential problems, he said.
Mr. Rosengren wasn’t explicitly calling for the Fed to raise short-term interest rates at its meeting this Tuesday and*Wednesday. Officials are divided over when to move, making it likely they’ll wait until later this year.*Futures markets put low odds on a rate increase this month.
But he warns that the Fed needs to consider the effects of very low rates in fueling bubbly asset prices. His main source of concern is commercial real estate—the soaring market for office buildings, warehouses and apartment buildings.
According to the Boston Fed, lending to the sector totaled $3.6 trillion as of March, with just over half of that provided by banks and the rest from financial firms such as pension funds and life insurers.
Prices have been rising steadily across the country since the end of 2009, the Boston Fed said.*Mr. Rosengren worries the gains are being driven in part by the scramble for returns in the low-yield world brought about by the Fed and its overseas counterparts, rather than by the fundamentals of supply and demand.
“Should prevailing economic conditions change in response to a large negative economic shock, commercial real-estate prices could decline relatively quickly, leading to large losses at leveraged firms,” he said in an Aug. 31 speech in Beijing. That, in turn, could trigger a broader economic downturn, he said.
The comments that sent markets tumbling came Sept. 9 in Quincy, Mass, when Mr. Rosengren said “a reasonable case can be made” for raising rates to avoid overheating the economy.
Most notably, he made the case for raising rates to head off financial instability despite the fact that this would slow the Fed’s progress toward its goals of fostering job growth and 2% inflation—an unusual statement of the cost-benefit trade-offs.
“A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery,” he said.
The comments augmented investors’ concerns about other central banks’ willingness or ability to keep the easy money flowing. The markets reacted violently.*The S&P 500, which didn’t move by more than 1% for 43 straight days, has since swung by more than that amount four out of the past six trading days. Yields on the benchmark 10-year Treasury note have risen 0.16 percentage point since Sept. 7.
While a rate increase at the September meeting next week isn’t likely, markets and Fed officials do seem on board with a move higher in the coming months, and Mr. Rosengren might be a consistent voice*lashing*them toward action. Forecasters at Wrightson ICAP told clients the Boston Fed leader is likely to argue for periodic rate increases—”a shot across the bows of the market” to “reduce the risk that valuations would reach levels that would ultimately prove destabilizing.”
Mr. Rosengren’s worries about the risks posed by commercial real estate aren’t fully shared by Fed officials. While some acknowledge the sector is getting pretty hot, there’s some skepticism it could create problems for the rest of the economy.
“I don’t dismiss what Eric is suggesting is something we may have to consider in time,” Atlanta Fed President Dennis Lockhart told reporters*Sept. 12. But, said Mr. Lockhart, who had a long career in banking before coming to the Fed, “I don’t think it’s an immediate question.“
Mr. Rosengren hasn’t said when he’d like to see the Fed raise rates. In the interview, however, he said*the Fed has “the luxury…to move in a deliberate and gradual way” and suggested it shouldn’t squander the opportunity.
Mr. Rosengren joined the Boston Fed in 1985 and became its president in 2007. Before that, he was executive vice president for the bank’s Supervision and Regulation Department, a job that informed his current outlook.*Over his career, he has observed multiple chapters in which commercial real-estate problems have caused broader damage,*citing episodes in New England and in Japan.
His current warnings appear to be a tacit acknowledgment of the Fed’s failure to take sufficient action to arrest the housing-market bubble in the years leading up the 2008 financial crisis and the worst economic downturn in generations. Much of that crisis was rooted in lending to borrowers with poor credit histories. Many economists said at the time that type of lending was too small to create real risks for the economy as a whole. They were wrong.
The hawkish edge to Mr. Rosengren’s recent comments marks a notable shift from when he was one of the strongest supporters of aggressive stimulus.
“I don’t worry much about labels,“ he said in the interview.
http://www.wsj.com/articles/a-fed-insider-warns-of-the-risk-of-low-rates-1474196402?mod=e2twe