New York Fed Williams Says Mortgage Purchase Supports Housing Market

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Federal Reserve Board Building in Washington DC, USA, March 19, 2019 REUTERS / Leah Millis / File Photo

July 12 (Reuters) – The Federal Reserve’s purchases of Treasuries and mortgage-backed securities affect both interest rates and financial conditions in general, with one group not having significantly more impact on the housing market, said New York Fed President Yorke John Williams. on Monday.

“I don’t see them as one tool specifically geared towards housing and the other not,” Williams told reporters after a virtual speech at an event hosted by the Bank of Israel. “Both of them affect interest rates, so both affect the cost of housing.”

Policymakers are debating how and when to start slowing the Fed’s asset purchases from the current rate of $ 80 billion a month in Treasury securities and $ 40 billion a month in mortgage-backed securities.

Williams, echoing comments he made earlier, said the US economy has yet to hit a threshold set by officials to cut asset purchases by the central bank. He declined to indicate a timeframe for when, in his opinion, the economy could reach that point.

When the time comes, Williams said it would be “natural” for the Fed to complete the cut in asset purchases before interest rate adjustments, similar to how it has done in the past. But he said it was important for the Fed to have flexibility.

Minutes from the Fed’s June policy meeting show that officials are divided on the best approach to cutting asset purchases, with some Fed officials pushing for a cut in mortgage purchases faster than Treasury purchases out of concerns that the housing market is overheating.

Williams said Monday that while home prices have risen, he does not think they are in bubble territory, indicating a decline in consumer debt and a stronger financial system.

The New York Fed chief also said that creating a permanent repo system that firms can use as needed to borrow money could help the Federal Reserve maintain tighter control over short-term interest rates in the event of an unexpected disruption to short-term funding markets.

“My experience in 2019 and 2020 is if something teaches you that the unexpected is happening and you have to be prepared for it,” Williams told reporters. Fed officials discussed the design of the potential for permanent repo at their June meeting, but have yet to decide whether they will create such a program. read more

Reporting by Jonnel Martha; Chizu Nomiyama editorial staff

Our standards: Thomson Reuters Trust Principles.

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