EDITOR NOTE: To most people, the spike in housing prices is directly attributable to the demand created by artificially low-interest rates. That makes sense. Apparently, the Fed wasn’t entirely convinced, and so they entertained a debate whether their purchase of mortgage-backed securities and/or Treasury purchases might be boosting the housing market. Fortunately, NY Fed John Williams had enough common sense to point out that both affect interest rates, and therefore both may be boosting the housing market. Perhaps it was something of a discovery for the Fed to learn that it was behind the deliberate inflationary surge that, ironically, took them by surprise. Nevertheless, the fact that the Fed even had this debate took us by surprise. When the outcome of a measure is obvious, does it really take a bureaucratic effort to investigate whether the outcome is connected to the measure that caused it? Or would jumping to that conclusion be as rash and reckless as, say, deploying it in the first place?
(Bloomberg) -- The U.S. central bank’s purchases of Treasury and mortgage-backed securities are both contributing to lower housing costs, Federal Reserve Bank of New York President John Williams said, alluding to an ongoing debate among policy makers over whether or not to scale back MBS buying faster than Treasuries when the time comes to taper.
“I don’t see them as, one tool is particularly focused on housing and the other not,” Williams told reporters Monday after a virtual speech at an event hosted by the Bank of Israel. “Both of them affect interest rates. Therefore both of them affect the cost of housing.”
The Fed is currently buying $120 billion of Treasuries and mortgage-backed securities each month, and Fed officials are planning to discuss in upcoming policy meetings the timing and mix of reductions in the pace of purchases as the economy recovers from the pandemic.
Minutes of the June 15-16 meeting of the central bank’s rate-setting Federal Open Market Committee, on which Williams serves as vice chair, revealed a debate over the merits of tapering purchases of the two types of bonds at different rates.
“Several participants saw benefits to reducing the pace of these purchases more quickly or earlier than Treasury purchases in light of valuation pressures in housing markets,” according to the record of the gathering, which the Fed published on July 7.
“Several other participants, however, commented that reducing the pace of Treasury and MBS purchases commensurately was preferable because this approach would be well aligned with the Committee’s previous communications or because purchases of Treasury securities and MBS both provide accommodation through their influence on broader financial conditions,” the minutes said.
Original post from Investing.com