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August 31, 2007
Bernanke and the history of housing
The press attention on this morning's speech by Fed Chairman Ben Bernanke is focused, rightly so, on reading the tea leaves as to the direction of monetary policy and interest rates (see Wall Street Journal, Reuters via washingtonpost.com, Associated Press via washingtonpost.com, the New York Times -- which split somewhat in their assessment of the possibility of a future rate cut).
However, the bulk of the speech is a history lesson, as befits a former professor. In this case, the lesson is on the development of the housing and home mortgage industries. Bernanke describes the role of the government and other institutional factors in the development of these markets and of public policy, especially monetary, in this area. For those interested in the long term direction of the Fed (rather than just the next interest rate cut), I would suggest paying close attention to his conclusion:
I hope this exploration of the history of housing finance has persuaded you that institutional factors can matter quite a bit in determining the influence of monetary policy on housing and the role of housing in the business cycle. Certainly, recent developments have added yet further evidence in support of that proposition. The interaction of housing, housing finance, and economic activity has for years been of central importance for understanding the behavior of the economy, and it will continue to be central to our thinking as we try to anticipate economic and financial developments.
Looking at the evolution of these institutional factors will be critical as we bring our policies in line with what is already happening in financing the I-Cubed Economy.
Posted by Ken Jarboe at August 31, 2007 10:35 AM
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