HOLD EVERYTHING: Fed Considering New Mortgage-Buying Stimulus Scheme

ben bernanke testifies joint economic committee

See, just a second ago, it was being reported that Bernanke was telling Senators that there would be no more stimulus, and that the ball was in Congress’ court to use fiscal stimulus.

But now WSJ is reporting that the Fed IS considering a scheme to buy more mortgage bonds, with the idea of lowering rates and stimulating housing some more.

It’s a bit odd, and hard to imagine it working that well, since mortgage rates are famously low already, and nobody seems to care. In fact, mortgage applications have been plunging lately — obviously rates are not the problem.

But, really, this is the tool the Fed has (buying more stuff) and if there’s any water to be squeezed from the stone, then perhaps the thinking is: Why not?

Or, perhaps, if the Fed buying were coupled also with a nationwide refi scheme then you might actually be able to reduce the monthly checks that homeowners make, and actually get somewhere.

Nothing is guaranteed on this front. There are clearly some opponents of more Fed action who are voting members of the board. Mike Konczal did a good job going over their opposition here.

On the other hand, with everyone from Goldman to Krugman calling on the Fed to do more, it’s perhaps not surprising that the conversation hasn’t ended with Operation Twist.

Also worth noting is that this whold discussion coming out today seems to be keying off a speech made by Fed Governor Daniel Tarullo at Columba, where he said, according to Bloomberg:

“We should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities… The aggregate demand effect should be felt not just in new home purchases, but also in the added purchasing power of existing homeowners who are able to refinance.”

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