Will Bernanke & Co. Step Up To Plate Again Soon?October 21, 2011 @ 10:08 AM EST
With the major economies of the globe teetering on the brink of recession again, many are looking to Ben Bernanke and the U.S. Federal Reserve to do more. And while monetary policy has had a questionable impact of late, the WSJ is reporting that Federal Reserve officials are now considering a new round of MBS (mortgage-backed securities) buying as a way to help breathe life into the sagging real estate market.
The thinking here is that the buying of MBS would push down mortgage rates – already at historic low levels – to even lower levels. The bottom line is simple as history shows that in the past, lower mortgage rates have meant more home buying and more refinancing – and both are a plus for economic activity.
However, noted Fed-watcher Jon Hilsenrath reports that while Fed officials are currently building a case for more easing, the FOMC isn’t likely to move quickly on this issue.
The problem with any plan to implement more easing is it will surely be met with resistance from the inflation hawks on the FOMC. Recall that there have been three dissenting votes (Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser) at recent Fed meetings from those members who worry that any further monetary easing will lead to rising inflationary pressures.
Fox News is reporting that the White House and the FHFA may reveal a list of legislative recommendations as soon as next week that would help distressed homeowners.
Recall that on Thursday, Reuters, citing Senator Feinstein, also reported that Fed Chairman Bernanke would propose measures next week to Congress to help stimulate the housing market. The Fox article, however, notes that Feinstein misspoke and meant the FHFA and not the Fed.
It is also worth noting that expectations for the Obama Administration to submit proposals to boost the housing mortgage have been ongoing since late August. Prior to the introduction of the President’s jobs bill, it was expected that Obama’s package to help the economy would include measures on boosting the housing market.
Those in favor of more Fed involvement argue that the housing market remains a major drag on the economy. In a speech Thursday, Federal Reserve governor Dan Tarullo said, "Housing continues to hang like an albatross around the necks of homeowners and the economy as a whole, with millions of underwater mortgages, a staggering inventory of foreclosed homes, and depressed levels of sales."
In addition, Ben Bernanke has pointed out recently that the housing market has been a driver of past economic recoveries. Recall that in his most recent testimony before Congress, the Fed Chairman strongly suggested that it is time for fiscal policy to step up to the plate as the FOMC has done its job.
However, the issue of any further monetary easing remains a political hot potato. Republican Presidential candidates have not minced words about their desire to put Bernanke on the bench and several have come out squarely against any further Fed stimulus. From a cynical perspective, opponents can argue that Republicans would prefer to see the economy remain stagnant so that they can campaign for a change in both the White House and the Senate.
There are also those who argue that the Fed’s policies have been ineffective over the past year. As such, many economist believe that it is time for Ben Bernanke to admit that monetary policy can only do so much and for the FOMC to move to the sidelines.
Editor's Note: Please feel free to weigh in with your thoughts on whether or not you think the Fed should do more in the comments section below...
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