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Why the Fed needs to target housing in determining interest rates

By Patrick following x   2018 May 22, 9:44pm 277 views   1 comments   watch   sfw   quote     share    


https://www.marketwatch.com/amp/story/guid/B4CD07EC-5D01-11E8-9A01-3AAC1E962476

The Federal Reserve should pay more attention to home prices when it sets monetary policy, a leading academic said Monday.

In a new research paper circulated by the National Bureau of Economic Research, Michael Woodford, an economics professor at Columbia University, said housing prices are a good indicator of private-sector expectations of monetary policy and should be tracked to see if the Fed’s interest-rate strategy is on course. ...

The central bank should “lean against” housing prices: being tighter when housing prices unexpectedly rise and easier when prices surprisingly fall. ...

At the moment, policy prescriptions like the well-known Taylor rule have traditional target variables only for inflation and the output gap. In his paper, Woodford suggests that a new variable for housing prices be added to the Fed’s policy rule.

Woodford said he “does not pretend to provide a complete analysis of the problem of a desirable policy response to house booms and busts.”
1   Tenpoundbass   ignore (11)   2018 May 23, 7:59am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I wish like hell the interest rates were back at 10% when I bought my house in 2010.
That would have most definitely meant that the value of the house wouldn't have been a penny over $120K and I would have it paid off by now.
But in the meantime the bank getting 10% from me would have had more than enough to pay their depositor 3%.




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