"Home construction is unlikely to bottom out this year, and I expect housing investment to continue to be a drag on growth through at least year-end," Lacker said.

Deterioration of the housing market, after 10 years of expansion that peaked in 2005, dragged financial institutions down, he said. Now, he said, the tightening of lending standards and inflation are combining to slow the the housing market.

"Moreover, inflation -- both overall and excluding food and energy prices -- has picked up of late," he said.

Lacker said, "the technology-driven wave of innovation in retail credit delivery … increased the pool of qualified borrowers and the range of feasible financial products and dramatically expanded access to mortgage credit."

Technology embraced by financial institutions, "spreads risks more widely and leads to lower borrowing costs," he said. "However, some experimentation and risks were involved."

"Looking back, there undoubtedly are many loans that both the borrower and the lender wish had not been made," he said.

Lacker spoke at a meeting of the West Virginia Banker's Association and the Community Bakers of West Virginia.