By Michael S. Derby
Feb 18 (Reuters) – An effort launched by the Trump administration to improve home borrowing costs is not coming to much so far, meeting minutes from the Federal Reserve’s January 27-28 meeting, released on Wednesday, said.
The minutes, describing a briefing by the New York Fed official responsible for implementing monetary policy, noted that plans by the administration to buy mortgage bonds had caused “a notable decline in mortgage-backed securities yields relative to those on comparable-maturity Treasury yields.”
Despite that move in the market, the official “observed that the decline was unlikely to result in a material increase in mortgage refinancing because current mortgage rates are well above the weighted average rate of outstanding mortgages,” the minutes said.
The comments by the New York Fed official echoed the views of private-sector analysts, who had noted that the Trump administration’s $200 billion plan, announced at the start of the year, had had some impact, but not in the way that would actually change much in what have been troubled housing market dynamics.
Fed officials themselves said the main challenge in the housing market is not the ease of financing but the supply of homes, and until supply improves affordability issues will continue to challenge a sector of the economy that currently defines the lion’s share of household borrowing.
The biggest driver of lower mortgage rates has been the Fed’s easing in the cost of short-term credit, which saw officials lower their interest rate target by three quarters of a percentage point last year, to between 3.5% and 3.75%. The Fed is currently on hold as it seeks evidence inflation is coming down, amid market expectations of more cuts this year.
The meeting minutes also noted that the New York Fed official said that recent changes to standing repo operations, which help the Fed manage its interest rate target, had made the lending tool more attractive to financial institutions.
The minutes also said that large-scale purchases of Treasury bills aimed at bolstering reserve levels ahead of the mid-April tax date were proceeding according to plan. Heading into that period, reserve levels were expected to bounce around the $3 trillion mark.
The Fed is adding liquidity due to technical considerations, and is ensuring money markets have enough cash on hand to keep short-term rates trading where the central bank wants them to be.
(Reporting by Michael S. Derby, Editing by Nick Zieminski)
