Why the Federal Reserve can't fix housing

NEW YORK (CNNMoney) -- Housing is still one of the biggest drags on U.S. economic growth, but don't look to the Federal Reserve for help. The central bank may have few tools left to fix it.

That's the basic hypothesis of a paper top economists presented to a room full of monetary policy elites in Manhattan Friday.

The US. Monetary Policy Forum is a one-day meeting presented by the University of Chicago Booth School of Business. In attendance are Federal Reserve officials, members of foreign central banks and economists from some of the world's largest banks and top universities.

At Friday's meeting, these top thinkers focused heavily on weaknesses in the housing market, and the mood was not exactly upbeat.

Traditionally, the Fed could aid the housing market during tough times, by lowering its key interest rate and thereby lowering mortgage rates. But the Fed's interest rate is already near zero and mortgage rates are already at record lows -- and yet the housing market remains in a slump.

Could the Fed be out of bullets when it comes to this key part of the American economy?

Has Obama's housing policy failed?

Economists at Friday's meeting argued the Federal Reserve can still bring interest rates lower with unconventional moves like asset purchases -- called quantitative easing -- but such policies are now unlikely to have a meaningful impact on housing.

That's because homeowners who might qualify for refinancing at lower interest rates have likely already done so.

The overhang in the housing market "may not be easily addressed by monetary policy," said Michael Feroli, chief U.S. economist at JPMorgan Chase.

St. Louis Fed President James Bullard agreed that the housing market is largely out of the Fed's hands now.

"To the extent that you would have policies that are going to help the housing market, they're not going to come from monetary policy makers," Bullard said.

Million-dollar foreclosures

But San Francisco Fed President John Williams pointed out that by buying assets that target housing specifically -- like mortgage-backed securities -- he thinks the Fed's policies have already lowered rates and could still push mortgage rates down further.

Another Fed president, Charles Plosser of Philadelphia, said later that he is critical of such a policy. The Fed already overstepped its bounds in 2008, when it started buying mortgage-backed securities, Plosser said.

He believes those actions blur the lines between fiscal and monetary policy -- a growing problem in the wake of the financial crisis that he calls "dangerous."

"The boundaries were established for good reasons and we ignore them at our own peril," he said.

A few members of Congress agree, and have been highly critical of what they see as the Fed's efforts to interfere in the housing market.

Fed officials have recently become more outspoken about problems facing the housing market, and have seemed eager to shift the ball into fiscal policy's court -- the purview of Congress and the president.

In January, Fed Chairman Ben Bernanke ruffled feathers of some Republican lawmakers when he issued a white paper analyzing housing policies proposed by the Obama administration, including ideas to transition foreclosed properties into rentals and programs that would facilitate refinancing for underwater mortgages.

Feroli, along with Ethan Harris, co-head of economic research at Bank of America Merrill Lynch and others, endorsed those policies in their paper Friday.