WASHINGTON, March 8 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
"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.