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Federal Reserve policy and housing: A goal too far

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  • Cargill, Thomas F.
  • Pingle, Mark

Abstract

Multiple goals tend to conflict, and this is true for multiple monetary policy goals. We present evidence that the Federal Reserve has responded to the general political support for homeownership and affordable housing in the U.S. by conducting monetary policy favorable to housing. When combined with insufficient recognition of financial innovations and flaws in the financial system, the addition of the goal of supporting housing has been “one goal too far,” creating economic distress more so than relieving it. We present evidence that it significantly contributed to the Great Inflation and the Great Recession. This work highlights the potential for government failure when a central bank makes discretionary choices with too many policy targets.

Suggested Citation

  • Cargill, Thomas F. & Pingle, Mark, 2019. "Federal Reserve policy and housing: A goal too far," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 150-158.
    • Handle: RePEc:eee:ecanpo:v:62:y:2019:i:c:p:150-158
    DOI: 10.1016/j.eap.2019.01.008
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    Cited by:

    1. Basse, Tobias & Desmyter, Steven & Saft, Danilo & Wegener, Christoph, 2023. "Leading indicators for the US housing market: New empirical evidence and thoughts about implications for risk managers and ESG investors," International Review of Financial Analysis, Elsevier, vol. 89(C).
    2. Day, Creina, 2019. "House prices post-GFC: More household debt for longer," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 91-102.

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    More about this item

    Keywords

    Federal Reserve; Financial regulation; Housing; Credit; Price stability;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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