From Calculated Risk Blog:
• And on effectiveness, one of the key transmission channels for monetary policy is through residential investment and mortgages. The previous rounds of QE (and “twist”) have lowered mortgage rates and allowed homeowners with excellent credit and income to refinance. However this channel has been limited as Bernanke noted in his Jackson Hole speech:
It is likely that the crisis and the recession have attenuated some of the normal transmission channels of monetary policy relative to what is assumed in the models; for example, restrictive mortgage underwriting standards have reduced the effects of lower mortgage rates.As residential investment recovers, and house prices increase (or at least stabilize), this channel will probably become more effective.
Last month I summarized some of The economic impact of a slight increase in house prices. This includes mortgage lenders and appraisers becoming more confident in the mortgage and housing markets. I think that is starting to happen, and I think QE might have more traction now through the housing channel.
Fed action can have double impact – 1) reduce US borrowing cost by reducing borrowing rates 2) Stimulate economic activity through increased housing activity and stabilization of real estate markets.