The Impact of the Fed’s Mortgage-Backed Securities Purchase Program

Some of the big questions looming about the Fed’s exit strategy are if, when and at what pace the Fed should draw down its huge portfolio of mortgage backed securities (MBS). At its meeting on December 15-16, 2009, the Federal Open Market Committee announced that it was continuing its MBS purchases at a “gradually slowing pace,” but this will still leave $1,250 billion in MBS on the Fed’s balance sheet at the end of the first quarter of 2010. Another, more long-term question is whether such price keeping operations—a term used by Peter Fisher, who once ran the trading desk at the New York Fed (Fisher, 2009)—should be a regular part of monetary policy in the future. Brian Sack, who now runs the trading desk, concludes in a recent speech that they should be (Sack, 2009).