Federal Reserve Governor Jeremy Stein said that diminishing returns from Fed purchases of Treasury securities indicate the central bank should instead buy mortgage-backed debt.

“MBS purchases may offer a better cost-benefit profile than Treasury purchases in the current environment,” Stein said Thursday in remarks prepared for a speech at the Brookings Institution in Washington.

Because corporate borrowers already have access to inexpensive lending, “it is natural to focus on a sector that is more sensitive to financing costs,” he said. “The housing market would seem to fit this bill.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Stein used the remarks, his first monetary policy speech since joining the central bank in May, to defend the Fed’s decision last month to begin purchasing $40 billion of mortgage-backed securities a month until the labor market improves. Still, he presented a detailed outline of the costs and risks from the central bank’s bond purchasing programs, including that the Fed may trigger financial instability.

“I believe that our recently announced policy of MBS purchases, coupled with the change in our forward guidance, are strong positive steps,” Stein said.

At the same time, the Fed’s asset purchase programs “are a different animal, and it is important for us to try to better understand these differences.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did