Dudley speaks at the Bretton Woods Committee International Council conference in Washington
Federal Reserve Bank of New York CEO William Dudley speaks at the Bretton Woods Committee International Council conference in Washington, September 23, 2011. REUTERS

(REUTERS) -- Two top Federal Reserve officials on Friday pushed the case for more stimulus from the U.S. central bank to help the economic recovery, each zeroing in on the country's weak housing market.

Policymakers need to consider more action to kick-start the housing sector and help the country's frustratingly slow economic recovery and unacceptably high unemployment, William Dudley, president of the New York Federal Reserve Bank, said in a speech in New Jersey.

Monetary policy should work to complement actions by other U.S. government policymakers, which together could help to stabilize home prices and turn around the housing market within a year or two under good conditions, said Dudley.

Speaking in Hartford, Connecticut, the president of the Boston Fed, Eric Rosengren, said one way to shore up housing would be for the central bank to buy more mortgage-backed securities.

Given the low inflation rate and weak labor markets that are both likely to persist this year, I believe the Federal Reserve should continue to explore ways to promote more rapid recovery through stronger growth, Rosengren told a business group.

The speeches from Dudley and Rosengren, both of whom are considered part of the Fed's dovish wing -- more concerned with strengthening the economy than trying to contain inflation -- made similar arguments and could set the tone for the central bank's more activist wing this year. Dudley, as the president of the New York Fed, holds a permanent vote on the central bank's policy-setting committee; Rosengren will rotate into a voting seat in 2013.

The Fed has bought Treasury debt and, to a lesser extent, mortgage-backed securities as part of its so-called quantitative easing efforts over the last three years, totaling $2.3 trillion in purchases. In response to the worst recession in decades, the Fed late in 2008 also slashed interest rates to near zero. .

The purchase of mortgage securities, however, was a controversial part of the first round of easing in 2009, known as QE1, drawing criticism from some officials for propping up a specific sector of the economy.

Dudley has in the past suggested the Fed could potentially do more to drive down mortgage rates to support the housing sector, which was at the heart of the financial crisis and recession and has continued to hamper the recovery.

I believe it is also appropriate to continue to evaluate whether we could provide additional (policy) accommodation in a manner that produces more benefits than costs, regardless of whether action in housing is undertaken or not, Dudley told the New Jersey Bankers Association Economic Forum.

Monetary policy and housing policy are much more complements than substitutes.


The Fed is to hold its next policy-setting meeting January 24-25, when a new slate of four regional Fed bank presidents will rotate into voting seats. Any further action could hinge tightly to prospects for the United States' stubbornly high unemployment.

The Labor Department on Friday reported that nonfarm payrolls added 200,000 jobs in December, the biggest gain in three month, and the jobless rate dropped to a near three-year low of 8.5 percent, offering the strongest evidence yet of an acceleration in economic activity.

Asked about the news, Rosengren said that while the job growth is better than had been seen recently, it is still not enough to return the country to full employment.

The moribund housing market and the European debt crisis, which is dragging on the European economy, continue to pose a threat to the U.S. recovery.

The Fed waded into the debate over what to do with the two main government-run mortgage finance firms this week, arguing in a paper sent to Congress that Fannie Mae and Freddie Mac could play a bigger role in turning around the housing market if they were allowed to provide cheaper mortgages to a broader pool of homeowners.

On Friday, Dudley called the white paper a thoughtful analysis of housing policy.

A truly comprehensive approach, he added, would also include long-term reform -- including reform of Fannie Mae and Freddie Mac -- to put housing finance on a more stable footing and to equip the market to deal more effectively with any future systemic shocks.

(Reporting by Jonathan Spicer in Iselin, N.J.; Ben Berkowitz in Hartford, Conn., and Ann Saphir in Chicago; Writing by Jonathan Spicer; Editing by Leslie Adler)