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Federal Reserve Bank of San Francisco President John Williams warned on Thursday that a reduction in house prices could lead to a drop in gross domestic product.
"Monetary policy actions have sizable and significant effects on house prices in advanced economies. A typical estimate is that a 1% loss in the gross domestic product is associated with a 4% reduction in house prices. This implies a very costly trade-off of using monetary policy to affect house prices when macroeconomic and financial stability goals are in conflict," he noted.
"If the housing sector and the overall economy are both booming, then tighter monetary policy may serve to both reduce the risks to the financial system and keep economic activity from exceeding desired levels," Williams added.
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