A senior Fed official warned that the United States could not bear the “boom and bust cycles” of the real estate market that could threaten financial stability. This shows that the Fed is increasingly concerned about rising housing prices.
Eric Rosengren, chairman of the Boston Federal Reserve Bank, told the Financial Times: “It is very important for us to return to the 2% inflation target, but the goal is to make it sustainable.” To make this situation sustainable, we cannot experience cycles of prosperity and depression in areas such as real estate.
“I am not predicting that we will go bankrupt. But I do think it is worth paying close attention to the real estate market,” he said.
According to data released by the National Association of Realtors last week, the median price of existing home sales in May rose by 23.6% year-on-year, exceeding US$350,000 for the first time.
Rosengren said that in the Boston real estate market, it is common for cash-only buyers to have the upper hand in bidding, and some people have been rejecting home inspections to gain an advantage among sellers.
“You don’t want the housing market to be too prosperous,” Rosengren said. “I just want to emphasize that the boom and bust cycles of the real estate market have occurred many times in the United States and around the world, and they have often become the source of financial stability problems.”
He says Hot property market It should be a factor because the central bank is considering slowing down or canceling some of the huge monetary support provided to the economy during the coronavirus pandemic.
As part of its asset purchase plan, the Federal Reserve buys $40 billion in agency mortgage-backed securities and $80 billion in Treasury bonds every month.
Fed officials are now discussing reducing the size of bond purchases. Rosengren said that to start the process “in due course”, the purchase of mortgage-backed securities should be at the same rate as the purchase of Treasury bonds. This means that direct support for housing financing will decrease more quickly.
“This means that we will stop buying MBS before we stop buying U.S. Treasury bonds,” he said.
St. Louis Fed President James Bullard was one of those who called on the Fed to reassess its support for the real estate market, noting that he pointed to widespread concerns about the nascent bubble.
Robert Kaplan, Chairman of the Dallas Federal Reserve Bank, also advocated ending purchases “sooner rather than later”, especially considering the growing evidence of financial speculation in the real estate market.
The Federal Reserve has stated that it will only begin to reduce asset purchases after achieving “substantial further progress” in achieving the 2% average inflation rate and full employment goals.
Taking into account the rapid recovery, Rosengren said, “Considering whether we make further substantial progress, the conditions may be met before the beginning of next year.”
Latest economy Fed forecast It shows that central bank officials will raise interest rates from the current lowest level in 2023, earlier than previous forecasts. They also revealed that the divergence within the Federal Open Market Committee on the expected path of monetary policy is greater than ever.
“There is a lot of uncertainty in the forecast,” Rosengren said. “Some people will have very rapid growth [and] The conditions for tightening policy may emerge sooner. Others will think the recovery will be slower. “