Fed officials discuss possible cut in purchases of mortgage bonds

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Federal Reserve officials are looking for ways to help calm the housing boom, and one suggestion may have been to cut back purchases of mortgage-backed securities, according to report from Wall Street Magazine… However, not all parties support the reduction in MBS and Treasury debt purchases.

The Fed has purchased $ 982 billion in mortgage bonds since March 2020, according to the report. In addition, the Fed intends to purchase $ 40 billion monthly to reduce long-term borrowing costs in hopes of boosting the economy that has suffered. pandemic.

“There are some unintended consequences and side effects of these purchases that we are seeing,” Dallas Federal Reserve President Robert Kaplan told the WSJ, referring to the mortgage bond purchases.

According to the report, Kaplan believes these purchases are contributing to soaring house prices. Kaplan is not the only Fed official concerned about the pace of these purchases. The WSJ also reported that Boston Fed President Eric Rosengren has proposed a “two-speed taper” in procurement.

On the other hand, some Fed officials believe that the purchase of mortgage and Treasury securities will help lower all interest rates in the long run.

“They see buying mortgage bonds in the same way as buying Treasury – as a way to lower long-term rates across the economy by buying long-term securities, which drives up their prices. The prices and yield of bonds move in inverse proportion, ”the report says.

Find out more about the disagreement among Fed officials over whether the continued purchase of MBS will boost the economy or cause additional inflation in the housing market.

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