Housing may not have been the headline topic at Jerome Powell’s NABE address, but it was one of the most revealing parts of his address and the conversation that followed.
Speaking at the National Association for Business Economics annual meeting, the Fed Chair outlined the central bank’s latest thinking on its balance sheet, inflation, and the economy. Along the way, he weighed in on mortgage-backed securities, housing affordability, and how today’s “lock-in effect” is shaping the impact of interest rate policy.
Powell made it clear that while housing feels the effects of every rate move, it isn’t the Fed’s target. Here’s what he said about mortgages, home prices, and the market’s path forward.
Byron Lazine broke down Powell’s statements in this morning’s Hot Sheet:
What Powell Said About Housing and Mortgages
At the NABE annual meeting, Fed Chair Jerome Powell didn’t shy away from one of the most sensitive parts of monetary policy: how the Fed’s actions affect housing.
His comments showed that while housing feels the impact of every rate move, the Fed does not focus on the housing market.
Powell reminded the audience that the Fed still holds about $2.1 trillion in agency mortgage-backed securities (MBS), a legacy of its pandemic-era response.
He referenced the Fed’s decision, when the economy came to a standstill in 2020, to launch large-scale purchases of Treasuries and mortgage-backed securities to keep credit flowing and prevent a deeper downturn. At least, that was the objective.
That support did help stabilize markets, but Powell acknowledged criticism of those MBS purchases, given how hot the housing market became during the recovery.
“Some have questioned the inclusion of agency MBS purchases given the strong housing market during the pandemic recovery.”
He added that the purchases were designed to ease broader financial conditions, not to prop up home prices. Still, he admitted the impact is hard to quantify:
“The extent to which these MBS purchases disproportionately affected housing market conditions… is challenging to determine.”
Looking back, Powell said, “We could have and perhaps should have stopped asset purchases sooner.”
Today, those MBS holdings are slowly shrinking. Powell emphasized that the Fed’s long-term goal is a balance sheet made up “primarily of Treasury securities,” not mortgage bonds.
And despite ongoing affordability issues, he made clear that the Fed won’t intervene to lower mortgage rates:
“We would certainly not engage in mortgage-backed securities purchases as a way of addressing mortgage rates or housing directly. That’s not what we do. We don’t target housing prices.”
He also noted how the “mortgage lock-in effect” has weakened the traditional link between rate cuts and housing activity. Many owners with ultra-low rates are reluctant to move, which “has probably blunted the transmission of lower rates into that part of the economy.”
Finally, Powell pointed to signs of “continued disinflation in housing services” even as core goods prices rise, suggesting shelter costs are no longer the main driver of inflation.
But his warning about potential market disruption was blunt: if the Fed were ever forced to sell MBS rapidly, it could “put upward pressure on the entire yield curve, raising borrowing costs for the Treasury and private sector.”
Byron’s final comment sums up the biggest takeaways from Powell’s statements:
“And for the hundred and fiftieth time, Jerome Powell stated, as clearly as he possibly can, he and the Fed have no interest in the housing market. It’s not a mandate from Congress. They don’t care about it, they don’t focus on it, they don’t create policy around what is good and healthy for the housing market. And so, some of the decisions they make, and some of the timing [of those decisions], especially if they wait too long on things, have adverse impacts on the real estate market. It put real estate into a 3+-year recession, when you factor transactions and unaffordability. That was the hands of the Fed, nothing else. That wasn’t institutional homebuyers; they didn’t put the housing market in this position. That was the Fed and the decisions that they made—and the ones they solely made at the times that they made them.”
