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Federal Reserve Member Wants to Slow Housing Market First

When the Fed moves to slow inflation and moderate the economy, Boston Fed Pres. Eric Rosengren thinks housing should be targeted first to avoid any “boom and bust.”

BOSTON – In a recent interview, Federal Reserve Bank of Boston President Eric Rosengren warned that the United States cannot afford a “boom and bust cycle” in the housing market that would threaten financial stability.

“It’s very important for us to get back to our 2% inflation target, but the goal is for that to be sustainable. And for that to be sustainable, we can’t have a boom and bust cycle in something like real estate,” he says.

“I’m not predicting that we’ll necessarily have a bust. But I do think it’s worth paying close attention to what’s happening in the housing market,” he adds. “You don’t want too much exuberance in the housing market. I would just highlight that boom and bust cycles in the real estate market have occurred in the United States multiple times, and around the world, and frequently as a source of financial stability concerns.”

Rosengren says the housing market should be a factor as the central bank considers slowing or removing some of the hefty monetary support for the economy introduced during the coronavirus pandemic.

To keep the economy moving during the pandemic slowdown, the Fed has been purchasing $40 billion in agency mortgage-backed securities (MBS) per month, along with $80 billion in monthly Treasury debt as part of its asset purchase program.

“When it is appropriate” to trim that bond buying, Rosengren said MBS purchases should be reduced at the same rate as Treasury purchases. “That would imply that we would stop purchasing MBS well before we stopped purchasing Treasury securities,” he said.

Source: Financial Times (06/28/21) Politi, James; Smith, Colby

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