Fed Considered Extending End-Date for MBS Purchases

Federal Reserve officials in their August meeting discussed extending the end-date for purchases of mortgage bonds to minimize any market disruptions, and expressed concern about the pace of a likely economic recovery.

A number of policy makers judged that a “tapering of agency debt and MBS purchases could be helpful in the future as those programs approach completion,” the Fed said in minutes of the Federal Open Market Committee’s Aug. 11-12 meeting released today in Washington. The central bank boosted its mortgage- backed securities and agency-debt programs in March and they are currently scheduled to end in December.

Officials have indicated differences on when to begin withdrawing their record monetary stimulus as signs emerge that the recession has ended. Two district-bank chiefs last week said the Fed may not need to complete its purchases of mortgage securities; New York Fed President William Dudley by contrast stressed an exit is “premature” given elevated unemployment.

“Most participants saw the economy as likely to recover only slowly during the second half of this year, and all saw it as still vulnerable to adverse shocks,” the Fed said in today’s minutes. “Labor market conditions remained of particular concern to meeting participants.”

The FOMC, which extended the end-date for Treasuries purchases by a month at the August meeting, made no decision at the time on programs for mortgage-backed securities and agency debt.