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Bullard says Fed passed QE2 test, others not so sure

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St. Louis Federal Reserve Bank President James Bullard says the end of QE2 proves the Federal Reserve has another steering wheel to grab when the economy is stalled and the fed funds rate is stuck at zero. To remedy such a situation, the Fed launched a $600 billion Treasury bond-buying program in November. As QE2 ended Thursday, reviews on the program are mixed, with some economists questioning the program's outcome. Bullard, on the other hand, remains cautiously optimistic about QE2, suggesting the effects of it may trail the program by six to 12 months. “The purchase and sale of liquid assets, such as Treasury securities, is very similar to ordinary monetary policy, except that a particular nominal interest rate target is not set,” Bullard said at a QE2 conference in St. Louis. “This experience shows that monetary policy can be eased aggressively even when the policy rate is near zero." Anthony Sanders, distinguished professor of real estate finance at George Mason University, expressed an opposing view. Sanders is more in-line with the Titanic view of QE2 that he used to describe the aggressive monetary policy stance. The professor asserts in his online report that QE2 helped Wall Street and stock prices, but left consumers sinking as they wrangled with skyrocketing energy prices and a declining dollar that sent oil prices higher. "Whether QE2 was a success or not will be debated for decades," Sanders wrote on his website. "But one thing we know is that cheap money was welcomed by investors. ... The stock market has rallied tremendously after QE1 and QE2." Even still, he alleges that QE2 did little for the man or woman on the street. Sanders said the program pushed down mortgage rates, sending the 30-year, FRM below 5%, but housing is still struggling at historically low interest rates. Going forward, Sanders said quantitative easing will not end completely. "At a minimum, the fed intends to roll over MBS principal payments (and agency debt repayments) into Treasurys to continue QE2," Sanders said. "This is QE2 Lite!" Write to Kerri Panchuk.

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