Federal Reserve policy makers are likely to slow monthly purchases of $85 billion in mortgage bonds and Treasurys sometime in 2013, reveal Federal Open Market Committee meeting minutes released Thursday.
While there was a clear majority in favor of further asset purchases beyond the Maturity Extension Program, the timing of completion of such purchases received mixed results.
“Broadly speaking, this range of views is in line with our baseline forecast for purchases to persist until year-end but to be tapered in the second half of the year by halting Treasury purchases but continuing mortgage-backed securities purchases,” Barclays said.
Simply put, the FOMC meeting minutes provided a timeline, indicating the order in which the Fed will wind down its open-ended third round of quantitative easing.
This would be consistent with the total balance sheet expansion of $870 billion between September 2012 and the end of 2013. Also included is $600 billion in agency MBS and $270 billion in Treasuries, Barclays stated.
“A few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases,” according to the minutes.
Also noted, “Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.”
Policy makers are expanding their third round of QE3 to help boost economic growth as well as cut unemployment. In previous meetings of bond purchases, the Fed purchased $2.3 trillion in securities.
On Dec. 12 the Fed announced rates remain unchanged during the close of the FOMC meeting.
The Committee will continue to purchase additional agency MBS at a pace of $40 billion per month. The Committee will also purchase long-term Treasury securities after the maturity extension program is completed at the end of the month at a pace of $45 billion per month.
During a question-and-answer session following the announcement, Fed chairman Ben Bernanke stated the decline in mortgage-back securitization yield will not stop investors from returning to the markets when the Fed agrees to sell its holdings.
Mortgage rates and MBS yield spread is widening. Bernanke pointed out that while he doesn’t expect 100% pass through of MBS, over time a great majority of MBS yields will get passed through with the benefit seen by retail customers and mortgage rates.