Chicago Federal Reserve Bank President Charles Evans said on Monday that it is not likely that he does not see as likely that U.S. housing demand and prices will weaken more than expected.
In his first speech since becoming the Chicago branch's president Evans said while the cutback a cutback in bad mortgage originations and continued high levels of unsold homes will contribute to further weakness in the housing markets.
Similar to 2006 and this year, he says one scenario involves "effects on overall growth will be fairly isolated to declines in residential construction."
But he noted that a "less benign" possibility exists.
"Housing demand and prices could weaken a good deal more than we expect â€” either because a new shock hits the sector or because we have underestimated the weakness already in train," he said.
"I want to emphasize that I do not see this extreme outcome as likely," he added. "But it is one of those high cost outcomes that we should guard against."
Evans spoke at the University of Chicago Graduate School of Business.