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Data: S&P CoreLogic Case-Shiller; Chart: Axios Visuals

With home prices surging, some Federal Reserve officials have made the case for the central bank to back out of the mortgage securities market.

Why it matters: The Fed has been purchasing $40 billion worth of mortgage-backed securities (MBS) each month in an effort to keep interest rates steady and bond markets very liquid.

The big picture (depending on who you ask): Ending MBS purchases could hinder the housing market causing prices to fall, or ending the MBS purchases wouldn’t do much to prices because they weren’t specifically targeting that market in the first place.

What they’re saying: The Boston Fed’s Eric Rosengren warned to the FT that “boom and bust cycles” in housing threaten the rest of the economy, reiterating his earlier statements that the mortgage market didn’t need the Fed.

  • The Dallas Fed’s Robert Kaplan and the St. Louis Fed’s James Bullard agree.
  • Allianz chief economic adviser Mohamed El-Erian is more blunt, telling Axios, "It is very difficult to argue with any foundation that this red-hot housing market needs continued support in the form of monthly Fed purchases of mortgage securities."
  • "The benefits of the Fed maintaining its purchases are more than offset by the costs and risks, be it to the functioning of the housing market or to financial stability and the wellbeing of the overall economy.”

Between the lines: While some argue the Fed risks instability down the road, long-time Fed watcher Matthew C. Klein argues that these purchases are why there isn’t more financial instability today.

  • "The Fed's mortgage bond buying isn't targeting the housing market specifically, but interest rate volatility more generally," Klein tells Axios. "The Fed is effectively absorbing interest rate volatility on its own balance sheet."

The intrigue: SGH Macro Advisors economist Tim Duy argues that if MBS purchases aren't intended to specifically juice housing, then ending those purchases shouldn’t disproportionately affect home prices. So, an attempt to address the "bad optics" of high home prices may fail because prices may not fall.

What’s next: Most economists expect the Fed to announce its plan to taper its purchases of MBS and Treasury securities by the end of the year, perhaps as soon as the Jackson Hole symposium in late August.

Go deeper

Powell gaining Senate moderates' support

Federal Reserve Chairman Jerome Powell. Photo: Al Drago/Bloomberg via Getty Images

Some Senate Democrats are urging President Biden to reappoint Federal Reserve Chairman Jerome Powell for a second term, suggesting that replacing him could erode the independence of the institution.

Why it matters: Public support from centrist Democrats has the potential to cinch reappointment for a figure credited with helping the country navigate the huge economic hit of the coronavirus pandemic. Powell's just completing what some termed a summer audition.

Ben Geman, author of Generate
45 mins ago - Energy & Environment

China vows end to building coal-fired power plants abroad

Chinese President Xi Jinping. Photo: Mary Altaffer - Pool/Getty Images

Chinese President Xi Jinping told the United Nations General Assembly Tuesday that his country "will not build new coal-fired power projects abroad" and plans to boost support for clean energy in developing nations.

Why it matters: The pledge, if maintained, would mark a breakthrough in efforts to transition global power away from the most carbon-emitting fuel.

House Democrats strip Iron Dome money from government funding bill

Photographer: Sarah Silbiger/Bloomberg via Getty Images

House Democrats on Tuesday stripped $1 billion for Israel's Iron Dome defense system from its short-term government funding bill after backlash from progressives, people familiar with the decision tell Axios.

Why it matters: There has never a situation where military aid for Israel was held up because of objections from members of Congress. While the funding will get a vote in its current defense bill, the clash underscores the deep divisions within the Democratic party over Israel.