PHILADELPHIA–Federal Reserve Chair Jerome Powell said there are no plans for the central bank to directly intervene in secondary mortgage markets in an attempt to help bring down mortgage rates, an idea some have proposed as a means of addressing the affordability crisis In housing.
Speaking at the National Association for Business Economics conference in Philadelphia, Powell spoke to the Fed’s progress with “quantitative tightening,” that is, its work to reduce the more than $6 trillion of securities it holds on its balance sheet.
Those holdings include approximately $2 trillion in mortgage-backed securities (MBS), which are bundles of home loans that are packaged together and sold to investors, usually by middlemen Fannie Mae and Freddie Mac, noted Realtor.com.
Rolling Off Balance Sheet
As the report noted, the Fed dramatically increased MBS purchases during the COVID-19 pandemic as part of its “quantitative easing” program. After peaking at around $2.7 trillion in 2022, the Fed has allowed them to roll off the balance sheet as they hit maturity, gradually shrinking the central bank’s investment in MBS.
What Some Have Proposed
Some in the bond market, however, have suggested that the Fed should instead reinvest in new MBS as older holdings mature, or even increase its holdings, as a way to bring down stubbornly high mortgage rates, Realtor.com said, explaining the Fed’s MBS holdings affect mortgage rates through the simple laws of supply and demand:
“By buying up MBS, the Fed increases demand for mortgages, raising their value. This incentivizes the creation of more mortgages, and mortgage rates drop as lenders compete for a piece of the market,” Realtor.com reported.
Powell, however, indicated there are no plans to change its policy.
