Philadelphia – A Federal Reserve policymaker said he saw no signs that delinquencies on subprime mortgages had spread to prime mortgages or the broader economy, according to a newspaper report Tuesday.
“If I started to see some of the spillovers occur in some of the prime mortgages, I’d get more nervous,” Federal Reserve Bank of Philadelphia president Charles Plosser said in an interview with The Wall Street Journal, the newspaper said in a published report on its website.
Signals, he said, would include “substantial falls in consumer spending, or employment really begin to tail off” or signs that the negative impact on consumer wealth of falling housing prices is “showing up in consumption in one form or another. And we don’t see that much.”
His comments shed light on what would constitute evidence at the Fed that housing problems are spilling over to the rest of the economy, the paper said.
Plosser said slumping housing markets used to have broader consequences because they led to impaired loans at banks, which then reined in lending. But in the past 20 years, financial innovation has enabled banks to distribute much of that risk through the financial system, he said.
