The Federal Reserve, in notes from its mid-December meeting, considered extending and expanding government-led initiatives to buy assets from mortgage agencies Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae. The FOMC also confirmed plans to buy $1.25trn of agency mortgage-backed securities (MBS) and $175bn of agency debt by the end of the first quarter, according to minutes released Wednesday. The size of these purchases are being reduced gradually with time, with the aim of preparing private investors to return to the market. Questions abound, however, as to the effect of a potential exit by the government from the mortgage securities market. A few committee members considered the possibility of at some future point providing more policy stimulus through an expanded scale and time line of large-scale asset purchases extending beyond Q1 2010. This scenario, according to the Fed minutes, would be especially applicable in situations where economic growth were to weaken or mortgage market functioning were to deteriorate further. Such a scenario — the so-called double dip — is expected by many in the financial markets, including PIMCO bond chief Bill Gross, who in an interview with TIME Magazine this week said he expects economic growth in the U.S. to weaken in Q3 and Q4 of 2010, “which would basically call for some additional help.” According to Gross, the Fed will exit mortgage markets, only to have to consider a re-entry later this year. “[B]ased on our forecasts for the second half of the year, they may have to reinitiate it, and that will be difficult to do once they stop because it then becomes a political hot potato,” he told TIME. Most of the Federal Reserve‘s liquidity facilities are set to expire February 1st, but the Term Asset-Backed Securities Loan Facility (TALF) for loans backed by new-issue commercial mortgage-backed securities (CMBS) is set to expire June 30th. TALF facilities for loans backed by all other types of collateral will expire March 31st, but committee members indicated they were prepared to modify these plans, if necessary, to support the securitization markets. Write to Diana Golobay. The author held no relevant investment positions.