Top Economist Rebuts Trump: $200 Billion Housing Stimulus Via Fannie, Freddie Will Spike Prices, Not Restore 'Affordability'

Benzinga_recent_news01-13

Moody's Chief Economist Mark Zandi warns that President Donald Trump‘s directive for Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) to purchase $200 billion in mortgage bonds will likely backfire, ...

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He argues that while lower rates will support housing demand, the “severe housing shortage” means the stimulus will “result in higher house prices, all else equal.”\nAccording to Zandi, the move will do “little to make homebuying more affordable” because the influx of cash will bid up the cost of limited inventory, negating the benefit of slightly lower rates.\nZandi identifies a deeper institutional conflict regarding the Federal Reserve. Although the central bank pivoted back to quantitative easing in December, Zandi points out that it is still “allowing its holdings of MBS (mortgage-backed securities) to prepay and mature.”\nZandi warns that Trump's order for the Government Sponsored Enterprises (GSEs) to aggressively buy these same bonds effectively “countervails the Fed's efforts” to manage its mortgage portfolio.\nHe describes the directive as a “backdoor way” for the White House to “circumvent the Federal Reserve,” creating a clash over who controls the money supply.\n“Who is in charge of setting monetary policy?” Zandi asked, calling the executive overreach “even more worrisome” than the market mechanics.\nTrump touted his decision not to sell Fannie and Freddie in his first term as a “truly great decision” that amassed an “absolute fortune” in cash. Zandi views this re-expansion of their balance sheets as a dangerous regression.\nHe warns that the “principal constraints” placed on the agencies after the 2008 collapse are now “eroding.”\nBy uncapping their portfolios, Zandi fears a return to the pre-crisis era where the agencies acted as “huge hedge funds,” a model he notes went “badly awry” during the Global Financial Crisis.\nThe CME Group's FedWatch tool‘s projections show markets pricing a 95% likelihood of the Federal Reserve leaving the current interest rates unchanged in January.\nThe SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, closed higher on Monday. The SPY was up 0.16% at $695.16, while the QQQ advanced 0.083% to $627.17, according to Benzinga Pro data.\nThe futures of the S&P 500, Nasdaq 100, and Dow Jones indices were trading lower on Tuesday.\nDisclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.\nPhoto courtesy: Tada Images / Shutterstock.com","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"policyRegulatory","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.36.1","shortVersion":"4.36.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2603508219","isCrawlerRequest":true}