Fed’s Kohn says Fed won’t act to preserve high home prices
WASHINGTON (MarketWatch) – The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. “If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany. In his remarks, Kohn attacked the popular ‘Greenspan put’ theory that Fed policy would always protect investors from sharp asset market drops while doing nothing to restrain these markets when prices. “This argument strikes me as a misreading of history,” Kohn said. “Conventional policy as practiced by the Federal Reserve has not insulated investors from downside risk,” he said.
This is a big one folks. One of the greatest concerns with bubble sitters was that the Fed would drop rates dramatically to protect home price gains. The drop in rates would push mortgage rates low and reignite the boom. The Fed is making it very clear that it will not act to protect housing prices. This is without a doubt one of the most significant articles released to date.