Bernanke: Fed Likely to Sell Some of Its Mortgages Eventually
Federal Reserve Chairman Ben Bernanke carves out new ground in his testimony to Congress today, saying the Fed is likely to start at some point gradually to sell some of its large holdings of mortgage backed securities.
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| Federal Reserve Chairman Ben Bernanke (Reuters) |
His goal, he says, is to get his $2 trillion balance sheet down to below $1 trillion. One way to do that is to sell mortgage-backed securities. This matters a lot for millions of Americans because if the Fed sells pieces of its trillion-dollar mortgage portfolio, it could place upward pressure on mortgage rates.
“I anticipate that at some point, we will have a gradual sales process,” Mr. Bernanke said in response to questions by lawmakers.
The timing of these sales is a wildcard. In February, Mr. Bernanke said, “I currently do not anticipate that the Federal Reserve will sell any of its security holdings in the near term, at smallest amount until after plot tightening has gotten under way and the economy is visibly in a sustainable recovery.”
In today’s testimony he says: “The sequencing of steps and the amalgamation of tools that the Federal Reserve uses as it exits from its currently very accommodative plot stance will depend on economic and financial developments and on our best judgments about how to meet the Federal Reserve?s dual mandate of maximum employment and price stability.”
In other words, he’s now not ruling out sales of mortgage-backed securities in the small-run. And he’s not saying it will only happen after the Fed starts raising interest rates, as he has said before. This doesn’t mean the Fed is plotting to sell down its mortgage backed securities straight away. As a replacement for it means it is a live debate within the Fed’s Federal Open Market Committee.
Mr. Bernanke also offered some optimism about the health of the mortgage market as the Fed winds down its mortgage buys. “We do believe that mortgage markets are performing better,” he said, adding that there’s been “very small negative reaction” in markets to the Fed’s plot to stop buying mortgage securities. Housing more broadly, he added, has become more affordable as home prices and mortgage rates have come down.