When Jerome Powell recently reflected that “we could have—and perhaps should have—stopped asset purchases sooner,” he understated one of the most consequential policy missteps of modern monetary history. His further claim that “the extent to which these [mortgage-backed securities] purchases disproportionately affected housing market conditions…is challenging to determine” simply doesn’t hold up. The evidence is overwhelming: the Federal Reserve’s massive pandemic-era MBS buying helped supercharge one of the largest housing booms on record.
From March 2020 through early 2022, the Fed bought more than $1.3 trillion in agency mortgage-backed securities—despite evidence that the home prices were already rising rapidly. Under its Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE), mortgage rates plunged below 3%, and national home prices soared over 38%, adding roughly $10 trillion in paper housing wealth. The Fed’s balance sheet, doubled from about $4 trillion to about $8.5 trillion. If that’s not “disproportionate,” what is?
Powell’s defense—that “many factors” influence housing—ignores what his predecessors understood perfectly well. Former Chair Marriner Eccles warned in 1947 that when materials and labor are scarce, easy credit “produces a dangerously inflated market.” William McChesney Martin, the Fed’s longest-serving chair, famously said the central bank must remove “the punch bowl just as the party gets going.” Powell’s Fed, instead, kept refilling and spiking it.
By mid-2020, AEI Housing Center data showed home prices climbing at double-digit rates—long before inflation appeared. We warned then: Driven by ultra-low mortgage rates and limited supply, home price gains of 10% year-over-year are unsustainable. Still, the Fed kept buying $40 billion in MBS each month until March 2022. As a result, home prices jumped in virtually all markets, with many increasing by over 20% a year, outpacing wages and feeding inflation. Powell now concedes the Fed “perhaps should have stopped sooner.” That “perhaps” carries trillion-dollar consequences.
The result was predictable: Artificially low rates inflated demand, tight supply channeled that demand into prices, and renters and first-time buyers were priced out. The Fed’s policies not only stoked overall inflation—Fed researchers later estimated that house price growth accounted for roughly one-third of core CPI gains—but also deepened wealth inequality by transferring gains to existing homeowners.
After the housing-driven Great Financial Crisis, the Fed should have known better. As Marriner Eccles warned Congress in 1947, “If [expanded credit] calls forth more production it will be desirable. If it only permits one borrower to bid against another would-be buyer for scarce goods & thus adds to upward pressure on prices, it is dangerous.” With supply extremely tight, easy credit again inflated prices, not home construction. As pandemic stimulus amplified demand, the Fed kept buying QE and ZIRP going—an explicit credit boost to housing. The Fed’s original mistake has now been compounded. Three percent mortgage holders won’t sell, freezing supply and turning a rate-fueled boom into a new stalemate born of the same easy money.
In short, Powell’s “we couldn’t tell” defense is really a failure to understand market dynamics and follow the data. Real-time mortgage, home-price, supply, and credit data existed—and warned of overheating long before 2022. The Fed ignored it. The lesson is clear: MBS purchases should be used sparingly and only to restore market liquidity, not to goose demand. Monetary policy that treats housing as just another asset class will keep distorting the market—and make future “perhaps we should have” apologies ring hollow. Easy money amid scarce supply only lifts prices. The Fed forgot that lesson—and Americans are paying the price.
