Housing is key to Fed's ability to reach middle classApril 18, 2013: 3:17 PM ET
Although the Fed has been juicing the economy since late 2008, it doesn't feel that way to many people on Main Street. That's because a key part of the process has broken down.
Tight credit and a large number of underwater homeowners means that many middle-class Americans simply haven't been able to benefit from the Fed's low interest rates.
Now that the housing recovery is underway, that could change, said Federal Reserve Governor Sarah Bloom Raskin, speaking at the Levy Economics Institute's Minsky Conference on Thursday. Fed policies could suddenly become "increasingly potent," she said.
"As house prices rise, more and more households have enough home equity to gain renewed access to mortgage credit and the ability to refinance their homes at lower rates," she said.
Raskin pointed to Fed research estimating that when home prices increase 10%, that could be enough to get about 40% of underwater homeowners back into the black.
Raskin also said that if the Fed's policies boost the job market, that could help even the lowest-wage workers. It still won't be enough, though, to change long-term income inequality trends.