Federal Reserve Chairman Ben S. Bernanke said most members of the Federal Open Market Committee don’t expect sales of the Fed’s holdings of mortgage-backed securities when it begins to exit record monetary stimulus.
“A strong majority now expects that the committee will not sell agency mortgage-backed securities during the process of normalizing monetary policy, although in the longer run, limited sales could be used to reduce or eliminate residual MBS holdings,” Bernanke said today at a press conference in Washington.
The U.S. central bank has expanded its balance sheet to $3.41 trillion to foster a speedier economic recovery and today affirmed its plan to keep buying $40 billion in mortgage bonds and $45 billion in Treasuries every month. Policy makers have been reviewing how they could begin to normalize the size and structure of those holdings as “part of prudent planning,” Bernanke said.
“Given the outlook and the committee’s policy guidance, these matters are unlikely to be relevant to actual policy for quite a while,” he said. “The broad principles set out in June 2011 remain applicable” and “participants continue to think that in the long run the Federal Reserve’s portfolio should consist predominantly of Treasury (USGG10YR) securities.”
Under the June 2011 plan, the Fed would cease reinvesting some or all principal payments from its securities, revise its interest-rate outlook, raise the federal funds rate and then start selling housing debt to eliminate it from the central bank’s portfolio in three to five years.
Bernanke said on Feb. 27 that the Fed may choose to hold the bonds on its balance sheet to maturity as it considers its strategy for an exit from record easing.
After a two-day meeting today in Washington, the policy-setting FOMC said in a statement that the housing sector has “strengthened further.” In his press conference following the gathering, the Fed chairman added that officials are closely monitoring the impact of their purchases on the mortgage-backed securities market.
“Our assessment is that market is still working quite well and that our purchases are not disrupting the normal price discovery and liquidity functions of that market,” he said. “If the market was really breaking down in some way, that would be a factor that we’d have to take into account” as the Fed evaluates its bond-buying program, he said.
To contact the reporters on this story: Aki Ito in San Francisco at firstname.lastname@example.org; Michelle Jamrisko in Washington at email@example.com
To contact the editor responsible for this story: Chris Wellisz at firstname.lastname@example.org