No bubble in housing market, Fed’s Powell says

WASHINGTON — Federal Reserve Chairman Jerome Powell said that concerns of a housing bubble are overblown, but that the central bank is closely monitoring surging home prices that could make it more difficult for entry-level borrowers to obtain mortgage loans.

The Fed has drawn some criticism for loose monetary policy, which some critics say has fueled the boom in the housing market as more borrowers compete for fewer available homes.

But Powell said Wednesday at a press conference following a meeting of the Federal Open Market Committee that he doesn’t have any financial stability concerns about such a competitive real estate market.

“It’s part of a strong economy with people having money to spend and wanting to invest in housing, so in that sense it’s good,” he said. “It’s clearly the strongest housing market that we’ve seen since the global financial crisis. My hope would be that over time, housing builders can react to this demand and come up with more supply and workers will come back to work in that industry.”

Beginning in March 2020, the Fed started purchasing mortgage-backed securities and Treasury securities to keep borrowing costs down. The central bank is currently buying $40 billion worth of agency MBS each month with no sign of slowing. However, Powell said that he doesn’t believe those purchases are fueling any kind of housing bubble.

“My hope would be that over time, housing builders can react to this demand and come up with more supply and workers will come back to work in that industry,” said Federal Reserve Chair Jerome Powell.

Bloomberg News

“It’s not meant to provide direct assistance to the housing market. That was never the intent,” Powell said. “It’s a situation where we will taper asset purchases when the time comes to do that and those purchases will come to zero over time, and that time is not yet.”

Unlike the 2008 financial crisis, Powell added, borrowers looking to buy homes are “in very good shape financially.”

“We don’t have that kind of thing where we have a housing bubble where people are over-levered and owning a lot of houses,” he said. “There’s no question though that housing prices are going up and so we’re watching that carefully.”

Powell also reiterated separately that he wants the Fed to carefully explore the idea of a central bank digital currency in the U.S. without worrying about the pace at which other countries are adopting digital currencies. China, for one, has moved quickly on its “digital yuan,” raising concern from some officials that the country is looking to oust the dollar as the world’s reserve currency.

Yet that potential is overstated, Powell said.

“The currency that’s being used in China is not one that [would] work here,” he said. “It’s one that really allows the government to see every payment for which it is used in real time. It’s much more to do with things that are happening within their own financial system than it is, I think, to deal with a global competition.”

The Federal Reserve Bank of Boston is currently working with the Massachusetts Institute of Technology to develop and test a hypothetical central bank digital currency that would inform the central bank’s work around the concept. Powell has also previously said that the Fed would not move forward on a digital currency without a blessing from Congress.

“Central bank digital currencies are now possible, and we’re going to see some of them around the world, and we need to understand whether that’s something that would be a good thing for the people that we serve [and] how would it work in our system,” he said.

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