The Federal Reserve in September signaled that it plans to begin unwinding, or tapering, its nearly $8 trillion portfolio of mortgage-backed securities (MBS) and Treasury holdings as early as November, assuming the economy stays on track as expected.
On the MBS side, which now represents about $2.5 trillion in securities held, observers believe the Fed will move cautiously – the Fed is expected to slowly reduce the level of new asset purchases while continuing to replace assets that have matured and run off the books. The central bank also can reverse course at any time and expand its MBS portfolio should economic conditions change. That’s the consensus of a group of economists interviewed this week by HousingWire.
In fact, stepping back into the secondary market is precisely what the Federal Reserve did in March and April of 2020, when the pandemic first choked the economy. The Federal Reserve became essentially the sole player in the MBS market over those two months, gobbling up $587.3 billion in MBS assets to help stabilize the market and spare the nation another major financial crisis.
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The post Federal Reserve’s ‘tapering’ plan will open up space in the secondary market appeared first on HousingWire.