The Federal Open Market Committee said the central bank plans to continue purchasing additional agency mortgage-backed securities to foster a continuing housing recovery while trying to keep unemployment rates down.
The FOMC made that conclusion after members met this week and announced on Wednesday that the central bank would continue purchasing agency-MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion a month.
"The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," FOMC explained.
The vote for the statement was 11 to 1 with Esther George, president of the Federal Reserve Bank of Kansas City dissenting, according to analysts for Econoday.
"She was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations," Econoday explained.
On April 10, the FOMC minutes revealed that some central bank members are still supportive of MBS.
Additionally, participants remained positive on housing, noting that demand is picking up after a period of debt deleveraging.
The housing market overall is seen as improving due to rising home prices, which in turn strengthen household balance sheets.
"Such a dynamic was seen as potentially leading to a virtuous cycle that could help support household spending and financial market conditions over time," the Fed minutes reflect.
Members of the Federal Reserve will continue purchases of Treasurys and agency MBS until the outlook for the labor market has improved.
Additionally, the committee is prepared to increase or scale back the pace of its purchases to maintain the appropriate policy accommodation for the economy.
The FOMC announcement was in line with the vast majority of market experts and regulators.
Matthew Zames, an adviser to the U.S. Department of Treasury, expected the central bank to continue its commitment to MBS and Treasurys given that inflation is below 2% and unemployment is above levels consistent with full employment.
"Expectations for tapering off of the Fed’s outcome-based purchases have been pushed back due to recent softening in the economic data. Market participants generally anticipate little change to Fed policy in coming months," Zames explained.