The Federal Reserve still has monetary policy on ultra-loose mode. Interest rates are anchored at zero and the central bank is buying $120bn-worth of assets each month—$80bn of Treasuries and $40bn of mortgage-backed securities—in order to depress long-term interest rates. This stance is in many ways still justified. There are 7.6m fewer jobs in America than there were before the pandemic. A large minority of adults remains unvaccinated.
The case of the housing market aptly illustrates how different corners of the economy are pulling the Fed along at different speeds, if not in different directions. The current property craze is at least in part spurred on by loose monetary policy. Low mortgage rates, which are a function of prevailing yields on mortgage-backed securities, tend to entice would-be homebuyers.
on June 27th Eric Rosengren, the president of the Boston Fed, said that America could not afford a “boom-and-bust cycle” in the housing market that would threaten financial stability. He is not alone. Robert Kaplan, the head of the Dallas Fed, has said that there are “some unintended consequences and side-effects of these [mortgage-backed-security] purchases that we are seeing play out”, including contributing to rocketing house prices. James Bullard, the president of the St.
At the Fed’s monetary-policy meeting on June 15th and 16th Jerome Powell, its chairman, made clear that the central bank is not yet ready to stop buying assets, but has begun to discuss when might be appropriate. One option might be to do what Mr Rosengren called a “two-speed taper”, slowing mortgage purchases more quickly than purchases of Treasuries. If housing needs less support than the wider economy this seems a sensible step.
A two-speed taper probably would not dent the housing market by much. For a start, the heat seems also to reflect a fall in supply during the pandemic, rather than low rates alone. And in any case, it is not as if the mortgage-backed-security market operates in isolation from broad monetary conditions. Yields tend to closely track those of Treasuries, even when the Fed is not buying up assets .
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More like proof Wall st 2 party ballout 2008 repeating immoral financial system by banks pocketing 5 principal mortgages instead of providing capital for 6 homes to be built to offset multiple generation crisis in no equity choice homes due to baby boomer sellouts
No. The craze is spurred by NEGATIVE INTEREST RATES which will create another housing bubble again and the cycle will start all over again
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No, it's not.