Fed mortgage bond holdings play 'central' policy rule, paper says
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Fed mortgage bond holdings play 'central' policy rule, paper says
(Reuters) - Federal Reserve holdings of mortgage bonds play a “central” role in how monetary policy affects the economy's momentum, academics wrote in a paper to be presented at a central bank research conference Saturday.
The paper takes stock of how the Fed uses increases and contractions in its holdings of Treasury and mortgage bonds to augment the changes it does with its interest rate target, actions collectively aimed to influence the economy's momentum.
Known as quantitative easing, or QE, Fed purchases of Treasury and mortgage bonds starting in earnest in the spring of 2020 caused central bank holdings to more than double to a peak of around $9 trillion by the summer of 2022. Fed holdings of mortgage bonds went from around $1.4 trillion in March 2022 to a peak of $2.7 trillion.
Mortgage purchases are particularly notable given the importance of housing financing factors in the US economy. But economists and central bankers have long struggled to measure the impact of the asset purchases, and some have doubted their value.
The paper, which was written by a group of economists for a presentation at the Kansas City Fed’s annual Jackson Hole, Wyoming, research conference, put some numbers of the impact of the Fed’s mortgage buying, and explained how the process works, noting private banks also play a role.
