Two Fed Officials Express Skepticism on Trump Administration Plan to Lower Housing Costs
By Michael S. Derby
Jan 9 (Reuters) – Two Federal Reserve officials, Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin, have expressed skepticism regarding a Trump administration plan to lower housing costs by purchasing billions in mortgage-backed bonds. They believe that addressing housing affordability goes beyond just financing and is more closely tied to the supply of homes available for purchase.
Bostic emphasized the importance of addressing the supply and demand imbalance in major housing markets, stating, “I do think that a lot of the housing affordability challenges are about more than just financing, and there’s a supply and demand issue that has persisted in many major markets.”
Barkin also highlighted the importance of increasing housing supply to make homes more affordable, stating, “the answer is on the supply side.” While acknowledging that purchasing mortgage bonds could impact mortgage rates, he stressed the need for initiatives that would bring more houses into the market.
The Trump administration’s plan, announced by President Trump on Thursday, aims to lower borrowing costs for homes by buying $200 billion in mortgage bonds. While the initiative has already started with $3 billion in purchases, the full scope and impact of the plan remain uncertain.
Analysts believe that the $200 billion in MBS purchases could lead to a modest reduction in mortgage rates, potentially lowering the current 30-year headline mortgage rate. The initiative has been compared to quantitative easing, a central bank policy where bond purchases stimulate the economy by driving up asset prices and reducing bond yields.
The Fed’s mortgage bond purchases during the COVID-19 pandemic played a crucial role in supporting the economy, pushing central bank holdings to $2.7 trillion by the summer of 2022. Trump’s decision to buy mortgage bonds outside of crisis conditions blurs the line between normal and emergency market conditions.
The administration’s willingness to use all available levers to address housing affordability signals a proactive approach to economic challenges. As the plan unfolds, its impact on the housing market and mortgage rates will be closely monitored.
(Reporting by Michael S. Derby and Howard Schneider; Editing by Paul Simao)
