Trump's $200 Billion 'People's QE' Mortgage Stimulus Plan Could Backfire, Economists Warn It Will Worsen 'Housing Affordability'

Core Viewpoint - President Trump's proposal to purchase $200 billion in mortgage-backed securities is facing significant criticism from economists, who warn that it may worsen housing affordability in the long term despite potentially lowering mortgage rates temporarily [1]. Group 1: Economic Concerns - Economist Mohamed El-Erian highlights that the proposal revives concerns about political interference in monetary policy, particularly through the use of funds from government-sponsored enterprises Fannie Mae and Freddie Mac [2]. - El-Erian also notes that political pressure on the Federal Reserve may extend beyond interest rate adjustments to include asset purchases, which he refers to as "People's QE" [3]. - Growing public anxiety over housing affordability is expected to lead to more aggressive policy responses, according to El-Erian [4]. Group 2: Long-term Implications - Economist Peter Schiff criticizes the proposal, stating that using $200 billion to buy mortgage bonds reduces the funds available for purchasing Treasuries, potentially leading to higher Treasury yields and inflation in the long run [5]. - Schiff argues that the fundamental issue in the housing market is not high mortgage rates but rather high home prices, suggesting that the proposal may exacerbate the problem by allowing buyers to overpay for homes [6]. Group 3: Unusual Intervention - Nick Timiraos from The Wall Street Journal points out the unusual nature of this intervention, noting that it occurs during a period of solid economic activity without systemic risks, indicating a political motivation behind the move [7]. - Timiraos emphasizes that previous Federal Reserve purchases of mortgage-backed securities were made without profit motives and resulted in significant losses during the COVID-19 era [8]. - Following the announcement, prominent real estate stocks, including the Vanguard Real Estate Index Fund ETF and Opendoor Technologies Inc., experienced a rally in after-hours trading [8].