The housing market collapse may have had a much larger impact on the overall economy than first believed. In fact, one Federal Reserve Bank chief claims the agency should shift the way it proposes and implements policies to compensate for the changing financial environment.
During a speech at the University of Notre Dame, Federal Reserve Bank of St. Louis CEO James Bullard said changes need to be made. For example, the Fed currently uses nominal gross domestic product targets when creating policy, but Bullard believes specific targets, such as price stability and employment should be used instead.
"As the dust has settled since 2008, it has become more and more apparent that U.S. real GDP is growing along a different path than the bubble-induced pre-crisis path," he said.
This feeling is contradictory to the beliefs of Federal Reserve chair Ben Bernanke.
If the Fed changes the way it formulates policy, this could have a subsequent impact on lending standards. Most recently, the agency announced a plan to further stabilize the bond market, which is expected to weigh heavily on mortgage rates for quite some time.