Fed’s ‘Helicopter Economics’ May Not Boost Housing
The Fed’s “helicopter economics” — throwing money out of a helicopter to flood the market with liquidity — worked in the early 2000s, but it won’t turn the housing market around this time, says Eugenio J. Alemán, senior economist at Wells Fargo Economics.
When the Fed tried that approach to turn around the downturn in the early 2000s, he notes it did boost home prices albeit at the cost of a strong dollar. Alemán says the Fed was hoping it could work the same magic again.
It did work this time in one way. By flooding the market with dollars, further lowering its value. Gasoline and food prices initially soared, but then consumers stopped buying and, Alemán notes, commodity subsequently prices came down.