It makes sense to target “problem areas” of the economy rather than take across-the-board actions, Federal Reserve Bank of San Francisco president John Williams said Friday.
“For example, purchases of mortgage-related securities appear to have reduced mortgage rates significantly, making them particularly useful given the weakness in the housing sector,” Williams told the Monetary Policy Forum, according to a prepared text of his remarks released by the Fed.
By directly addressing “housing-related headwinds,” you create “a stronger housing recovery and more powerful effects from the existing monetary stimulus,” he said.
Discussing a paper presented at the Housing, Monetary Policy and the Recovery conference, William said he agrees with its executive summary, which calls for “a more aggressive monetary response than in normal downturns.”
While the federal funds rate target has effectively been zero, recent conditions called for a “substantially negative” number. However, if the belief that “monetary policy is less powerful than usual” is true, Williams said, it “suggests we need to move our monetary instruments even more than usual to achieve our employment and price-stability objectives.”