In recent weeks various members of the Federal Reserve have hinted that the Fed could engage in another round of quantitative easing, perhaps in the form of mortgage-backed securities (MBS) purchases.
Most recently, William Dudley, the President of the Federal Reserve Bank of New York gave a speech at West Point where he said:
“I am deeply unhappy with the current forecast of prolonged high unemployment, and will continue to review whether there is more that we could do that would bring more benefit than cost”.
Dudley said that it “might make sense” for the Fed to buy mortgage backed securities in an effort to prop up the housing market. Significant purchases of MBS would drive down MBS yields, causing mortgage rates to go lower. Dudley remarked:
“If additional asset purchases were deemed appropriate, it might make sense to do much of this in the mortgage-backed securities market. This would have a greater direct impact on the housing market and would be less likely to disrupt market functioning compared with further purchases in the Treasury market.”
Only a few days prior, Chicago Fed President Charles Evans said that additional “policy accommodation” could be needed to bring down the unemployment rate, still lingering around 9%, where it has been for much of the last two years. Evans notably dissented from the last FOMC statement, which called for no changes in policy.
In addition to Evans, San Francisco Fed President John Williams mentioned the possibility of more asset purchases in a speech in Arizona:
“Additional monetary policy accommodation- either in the form of additional asset purchases or further forward guidance on our future policy intentions – may be needed to bring us closer to our mandated objectives of maximum employment and price stability.”
The next opportunity for the Fed to change policy would be at FOMC meetings on December 13th, January 26-27, and March 16th. Recent economic numbers have shown slight improvement in the American economy, but none of this has had any significant impact on unemployment, which remains stubbornly high.
Additional MBS purchases could be a boon to anyone who is buying a new home or refinancing their current mortgage.
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