Federal Open Market Committee meeting minutes released Jan. 3 revealed that the Fed is poised to slow its purchases of mortgage bonds and Treasuries in 2013, HousingWire reported. The purchases, which are part of the Fed’s third round of quantitative easing, have amounted to about $85 billion per month.
The minutes showed that a clear majority of FOMC members favored additional purchases through at least the end of 2013, although the minutes also showed that the amount the Fed purchased likely will start to taper off by mid-year.
Barclays analysts told HousingWire that the minutes were consistent with the Fed’s total balance sheet expansion of $870 billion between September 2012 and the close of 2013. That amount includes $600 billion in agency mortgage-backed securities and $270 billion in Treasuries.
While the minutes noted that some FOCM members expressed doubts about the wisdom of slowing purchases, fearing that such a move could lead to financial instability, it appeared likely that the Fed could persist in plans to wind down QE3, which was designed to boost economic growth and stem unemployment.
The FOCM noted that it would continue purchasing agency MBS at the rate of about $40 billion per month while purchasing long-term Treasury securities at the rate of $45 billion per month, HousingWire reported.
Fed Chairman Ben Bernanke noted that he does not expect the decline in MBS yield to deter investors from returning to the market when the Fed ultimately decides to sell its holdings, although the spread between mortgage rates and MBS yield is widening.