Housing slowdown threatens US economic growth, warns Yellen

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By Robin Harding in Washington

The housing market slowdown poses a fresh risk to growth in the world’ largest economy, Federal Reserve chairwoman Janet Yellen has warned in testimony to Congress.

Ms Yellen said the Fed’ otherwise optimistic outlook could be undermined if disappointing housing activity continued for the rest of the year.

Her remarks suggest the Fed still sees significant threats, despite encouraging data such as April’ growth of 288,000, and will keep slowing its asset purchases at the modest pace of $10bn per .

“Readings on housing activity – a sector has been recovering since 2011 – have remained disappointing this year and will bear watching,” said Ms Yellen. “The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”

housing starts and existing home sales are both down on a year ago as higher interest rates, tight mortgage availability and slow income growth damp activity in a sector crucial to the broader recovery.

Ms Yellen’s testimony marks her first public comments since last week’s of the Federal Open Market Committee, when the Fed slowed its asset purchases by another $10bn a month to $45bn, and sounded more on the economy.

The Fed chairwoman told the joint committee “a rebound in spending and production is already under way”, after a cold winter left annualised first-quarter growth at just 0.1 per cent, solid expansion expected in the second quarter.

Ms Yellen also warned of dangers from outside the . “At present, one prominent risk is adverse developments abroad, such as heightened geopolitical tensions or an intensification of financial stresses in emerging market economies, could undermine confidence in the global recovery,” she said.

She repeated her view that “conditions in the market have improved appreciably, [but] they are still far from satisfactory” – pointing to high levels of long-term unemployment, slow wage growth and the of people working part-time would like full-time . Ms Yellen noted some risks to financial stability as investors chase yields but said increased risks for banks and insurers were “modest to date.” (FT)