Fed's Bullard: Housing Data May Be Reason to Go Slowly on Taper

JACKSON HOLE, Wyo. - The rise in mortgage rates and its apparent adverse impact on housing may be one reason for the Federal Reserve to proceed carefully in scaling back its large-scale asset purchases, St. Louis Federal Reserve Bank President James Bullard said Friday.

Mere talk about "tapering" so-called "quantitative easing" has led to a tightening of financial conditions, so the Fed's policymaking Federal Open Market Committee should not be in a hurry to reduce the amount of monetary stimulus it is injecting through its bond buying, Bullard told MNI outside of the Kansas City Federal Reserve Bank's annual symposium.

Bullard was interviewed in the wake of a report from the Commerce Department showing a much larger than anticipated 13.4% plunge in new single family home sales to 394,000 for the month of July. June sales were revised lower.

It was the first time since December 2012 that new home sales have fallen below the 400,000 pace and is just the latest indication that the housing recovery may be cooling off somewhat as mortgage rates rise in response to rising bond yields.

MNI asked Bullard to what extent the FOMC, of which he is a voting member, should take into consideration rising mortgage rates and their negative impact on housing as it sets monetary policy.

"Housing has been a critical factor over this whole five-year period," Bullard responded, adding that "in the last 18 months we've seen a housing recovery."

"So this (drop in home sales) is something I take very seriously," Bullard said.

Bullard said he "wouldn't be too concerned about what just one month's numbers show," but made clear he'll be keeping a close eye on how the housing sector fares in coming months.

And he suggested that the increasing cost of housing finance might be one reason to be patient about scaling back the Fed's $85 billion monthly bond purchases.

"The rise in yields, if you want to view it as partly or mostly due to Fed talk of pulling back accommodation, (means that) we've gotten some tightening already," he said. "So this might be one reason for going slowly."

"I don't know if it's enough to carry the day, but it's one to put on the table," he added.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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