Fed Boosts Housing, Housing Boosts Fed — Repeat

Photograph by Daniel Acker/Bloomberg

Potential buyers view a new home under construction in South Barrington, Illinois.

One hand washes the other.

The Federal Reserve’s record stimulus is starting to lift the U.S. housing market out of the basement. And the boost in home prices is poised to start giving the broader economy a bigger push, rather than holding it back as it has for years.

Much of the Fed’s unprecedented policy has aimed to cut the cost of home loans, which it’s driven to record lows. The point is to boost the economy, which is what it’ll happen as the rebound in home prices gives people more to spend on other products and services, and that, eventually, will help reduce unemployment.

“Housing is so incredibly important” because it makes the economy “more and more sensitive” to low interest rates, said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “Home prices feed directly into household balance sheets and therefore to consumption, and home prices feed directly into bank balance sheets and therefore banks’ health and their willingness to lend.”

The Fed has attacked the damage from the financial crisis by carrying out quantitative easing, buying more than $2.3 trillion in bonds. Policy makers also have held the main interest rate near zero since December 2008 and pledged to keep it there through mid-2015. Now their efforts are paying off.

See the full story at Bloomberg.com.

With assistance from Shobhana Chandra in New York.

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