Fed Officials Discuss Possibly Scaling Back Mortgage Bond Purchases

Federal Reserve officials are looking into ways to help calm the housing boom and one suggestion was possibly scaling back on the purchases of mortgage-backed securities, according to a report from The Wall Street Journal. However, not all parties are in support of scaling back MBS and Treasury debt purchases. 

According to the report, the Fed purchased $982 billion in mortgage bonds since march 2020. Additionally, the Fed intends on purchasing $40 billion each month moving forward, with the intentions of quelling long-term borrowing costs in hopes to jumpstart the economy that was crippled by the pandemic. 

“There are some unintended consequences and side effects of these purchases that we are seeing play out,” said Dallas Fed President, Robert Kaplan, in an interview with WSJ referring to the mortgage-bond purchases. 

Kaplan thinks the purchases are contributing to skyrocketing home prices, according to the report. Kaplan isn't the only Fed official concerned about the rate at which these purchases are being made. The WSJ also reported that Boston Fed President, Eric Rosengren suggested a “two-speed taper” on purchases. 

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

“They view the mortgage-bond purchases as they do the Treasury purchases—as a way to push down long-term rates throughout the economy by buying long-term securities, which pushes up their prices. Bond prices and yields move inversely,” according to the report.

Read more about the divide between Fed officials on whether or not the continuous purchase of MBS' will stimulate the economy or cause added inflation in the housing market.