Skip to main content

SF Fed Chief Warns on Using Monetary Policies to Shape Housing Market

Phil Hall
Aug 20, 2015
Home in Hands Pic/Credit: violetkaipa

One of the top officials in the Federal Reserve System warned using monetary policies to address perceived problems in the housing market is a strategy with more than a few problems.

Speaking before the Bank Indonesia–BIS Conference in the Indonesian capital of Jakarta, San Francisco Federal Reserve John Williams warned that “sizable and significant effects on house prices in advanced economies” can result from adverse monetary policy shifts.

“That is, an increase in interest rates tends to lower real (inflation-adjusted) house prices,” said Williams. “This reduction in house prices comes at significant costs in terms of reductions in real gross domestic product and inflation.”

Williams noted that using monetary policy actions in regard to curbing the expansion of housing bubbles can work, but only when there is an overlap in macroeconomic and financial stability goals.

"For example, if the housing sector and the overall economy are both booming, then tighter monetary policy may serve to both reduce the risks to the financial system and keep economic activity from exceeding desired levels," Williams said.

Nonetheless, Williams warned that if monetary policy is being used to change interest rates, then it is important for changes to be proactive and not reactive to the economic environment.

“A typical estimate is that a one percent loss in GDP is associated with a four percent reduction in house prices,” Williams added. “This implies a very costly tradeoff of using monetary policy to affect house prices when macroeconomic and financial stability goals are in conflict.”

Published
Aug 20, 2015
MBA Swears In New Officers For 2021-22

Kristy Fercho, executive vice president and head of home lending at Wells Fargo, is the new chairman.

Industry News
Oct 18, 2021
Wemlo Introduces Third-Party Processing Solution

Wemlo announced the first third-party mortgage processing solution, Loan Brokering System.

Tech
Oct 18, 2021
Nationwide Mortgage Bankers Names New COO

Nate Hernandez was named chief operating officer for Nationwide Mortgage Bankers.

Industry News
Oct 18, 2021
ICE Unveils Transaction-Based Indices For Residential Mortgage Interest Rates

Intercontinental Exchange Inc. launched its suite of U.S. residential mortgage locked rate indices.

Tech
Oct 18, 2021
ChainLogix Appoints New Vice President, Operations

Jeryl Graham hired to accelerate growth in title & mortgage services.

Industry News
Oct 15, 2021
JPMorgan Chase To Commit $8.4M To Improve Household Stability For The Underserved

JPMorgan Chase announced six organizations that will receive philanthropic capital as part of the firm’s $400 million five-year commitment to improve housing affordability and stability for Black, Hispanic and Latino, and other underserved households.

Community
Oct 15, 2021