How the Fed Can Help

Sep 21, 2022 | Finconomics 101, No Bull Economics

Seeing that the Fed is so central to the economic well-being of the country it may be time for this all-important institution to consider expanding the scope of its central mission (helping banks) to a new mandate of seeking to help individual Americans as well.

In a past post, we proposed that the Fed should consider transferring the $9 trillion in assets on its balance sheet to American citizens. Who owns this fortune if not us? We have a good plan that could work.

Now we have another idea of how the Fed can help ordinary Americans. Why doesn’t the Fed ensure the availability of affordable mortgages in order to support the residential real estate market? This would be consistent with the way the Fed periodically supports the stock market (known as the Fed put), helping huge financial institutions.

An empathetic Fed would recognize that doubling mortgage rates in such a short time is harsh on everyone that would like to buy or sell a house. Further, these actions are precluding potential first-time buyers from escaping exorbitant rent increases. Certainly, the Fed is aware that there are better ways of fighting a sharp increase in home prices than simply crashing the real estate market. One solution would be for the Fed to fund bank mortgages at lower rates for residential real estate transactions which are underwritten with tighter standards. This would prevent bidding wars fueled by buyers taking on too much debt. The Fed has a role to play in supporting the economy & it must embrace the notion of spreading its help equally among large financial institutions and us small fries.

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