The Fed knows skyrocketing home prices are a problem but doesn't know what to do about it

• Federal Reserve policymakers have an eye on surging US home prices, meeting minutes showed.
• Some officials "saw benefits" to tapering mortgage-loan purchases to cool the red-hot market.
• Members chose to hold policy steady, but the minutes signal the Fed may want to curb inflation.

Of the various items surging in price in 2021, homes are perhaps the most extraordinary.

Price growth is the strongest it's been in more than 30 years. While demand remains elevated, builders have struggled to bring more supply to market. America's central bank played at least some role in this incredible price inflation.

The Fed's emergency policies dragged mortgage rates to record lows and helped spark the sharp increase in homebuying. But as prices climb to dizzying heights, some experts have called on the Fed to rein in its support. Officials at the Fed are tuned in to the problem, minutes from the Federal Open Market Committee's June meeting showed.

Several of the meeting's participants "saw benefits to reducing the pace" of the central bank's purchases of mortgage-backed securities, citing "valuation pressures in housing markets," the minutes said. They also suggested tapering MBS purchases earlier than Treasury purchases, a move that would counter the Fed's past signals.

The FOMC meeting ended with policymakers electing to hold rates near zero and keep buying at least $80 billion in Treasuries and $40 billion in MBS each month.

The outlook echoes comments made in recent months by a handful of Fed officials. Dallas Fed President Robert Kaplan said in May that MBS purchases could be having "some unintended consequences" that should be weighed against their benefits.

"We don't want to get back to the housing-bubble game that cost us a lot of distress in the 2000s," St. Louis Fed President James Bullard said on CNBC in June.

But other FOMC members saw reason to stay the course. Several said synchronized tapering of Treasuries and MBS purchases would be preferable, since that "would be well aligned with the Committee's previous communications," the minutes showed. They also said purchases of both Treasuries and MBS helped the Fed achieve its goal of easing financial conditions.

For the moment, any policy shifts are likely months away. FOMC participants agreed to continue assessing the housing market and discussing plans for eventual tapering. Fed Chair Jerome Powell has repeatedly said that "substantial further progress" toward the Fed's goals of maximum employment and inflation averaging 2% was required for policy adjustments.

Officials generally agreed in June the threshold hadn't yet been met, according to the minutes. For now, then, the Fed is set to keep house prices booming. But there's a crack in their thinking.