During his semiannual monetary policy report to Congress, Federal Reserve Chairman Jerome Powell did not specify a timeline for lowering interest rates, despite concerns about the impact of a tight monetary policy on the housing market.
Powell mentioned that Fed officials are not yet ready for a rate reduction but emphasized the importance of achieving a better balance between inflation and employment in the U.S. economy. The majority of experts predict a rate cut at the September Fed meeting. Powell stated that a decrease in the federal funds rate target range would be appropriate once there is more confidence in inflation moving towards the 2% target.
While data from the first quarter did not provide this confidence, recent inflation readings have shown some progress. Powell also noted that the labor market is strong but not overheated, with no significant inflationary pressures at present.
Concerns about affordability challenges in housing were raised during the congressional hearing, with high costs and mortgage rates impacting constituents. Senator Sherrod Brown highlighted the negative effects of keeping rates high for too long, leading to income constraints and a shortage of affordable housing.
Affordability challenges
Powell acknowledged the impact of the COVID-19 pandemic on housing market distortions and stated that lowering inflation to 2% would help normalize rates and address housing shortages.
Basel III Endgame rules
Participants criticized the Basel III rules during the hearing, citing increased bank capital requirements that could affect the mortgage industry. Tim Scott expressed concerns about overregulation hindering home ownership opportunities.
Powell mentioned ongoing discussions with regulatory agencies to address concerns and make necessary changes to the Basel III proposal. The Mortgage Bankers Association supported the call for a re-proposal of the flawed Basel III Endgame, citing potential negative impacts on the economy and mortgage credit availability.
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