Fed's Duke: US housing recovery to continue, cautions on rules
WASHINGTON, March 8 |
WASHINGTON, March 8 (Reuters) - The U.S. Federal Reserve may consider holding mortgage-backed securities (MBS) longer on its balance sheet to minimize market disruption, instead of selling them as it exits at some point from easy monetary policy, a top Fed official said on Friday.
Fed Governor Elizabeth Duke also said the broad recovery in U.S. housing was likely to strengthen as an improving economy unleashed pent-up demand, but she warned that tight credit conditions could be a drag on the upswing.
"The strength of this momentum will be determined by credit availability to these new households, an availability that may be much slower to return as mortgage market participants assess the regulatory, market, and economic environment," she said.
In remarks prepared for delivery to a Mortgage Bankers Association conference in Avon, Colorado, Duke reminded her audience that the Fed decided in 2011 that it would sell its MBS holdings when it eventually tightens monetary policy.
"We might conclude that sales of MBS in volumes sufficient to meet the parameters of the exit strategy principles might create significant market disruptions," she said.
The benefits of buying mortgage-backed bonds might also get outweighed by concerns the Fed was becoming too big a part of the MBS market, and was hurting the market's efficient functioning.
"In either case, I think we should consider alternatives, such as holding the securities for longer or allowing them to roll off more gradually," Duke said.
The Fed is currently buying $40 billion of MBS every month, as well as $45 billion of Treasury bonds, in an aggressive bid to support the U.S. recovery.
It has also held interest rates near zero since late 2008 and vows to keep them there until unemployment hits 6.5 percent, provided inflation stays under 2.5 percent. The U.S. jobless rate fell to 7.7 percent in February from January's 7.9 percent.
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