Why has the Fed been so hesitant to meaningfully sell Mortgage backed securities that are no longer underwater when rent is arguably the biggest driver of inflation right now? Informed/quantitative replies only.
Posted: Jun 20, 2024
- Fed has $2.35 trillion in MBS on balance sheet - Fed has been selling treasuries faster than MBS assets - Concerns about real-estate exposure on bank balance sheets - CITI has a low price/book ratio, indicating potential trouble - Worries about inflation and Fed's impact on the economy Overall, the post expresses concern about the Fed's management of MBS assets, potential economic trouble in the real-estate market, and the impact on stocks like $CITI.
🚨 Reddit sentiment: mixed/negative - Comments highlight various negative impacts and potential risks of the Fed selling MBS, including fears of breaking the economy, further increasing mortgage rates, and complicating inflation control, but there are also some understanding towards the Fed's cautious approach. Summarized comments: - The Fed is not actively selling MBS but letting them run off instead. - The mortgage interest rates are already high, around 7-8%. - Fear of breaking something in the economy is a concern for the Fed. - Selling MBS would further increase mortgage rates. - The Fed has reduced its balance sheet by $1.7 trillion since April 2022. - The Fed accumulated MBS to prop up financial institutions during 2008 and COVID-19. - High home prices and high mortgage rates are seen as unsustainable. - The Fed prefers to let housing inflation subside without drastic interventions. - Actively selling MBS could push mortgage rates to around 10%. - The Fed’s dual mandate does not include managing MBS, which complicates their decision-making. - Increasing mortgage rates would drive rents higher, adding to inflationary pressures. - The Fed holds these securities to maturity, so current market values don't impact them. - The Fed's actions are influenced by congressional fiscal policies. - The logistics of selling significant amounts of MBS might involve complex bureaucratic challenges.
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