Fed Purchases of Fannie/Freddie Assets Pass $1 Trillion Mark
For the first time since it began purchasing mortgage-backed securities, the Fed's holdings of federal agency MBS's passed the $1 trillion mark last week and now total $1.032 trillion. The Fed announced on November 25, 2008 that it would begin purchasing MBS's from housing-related government sponsored enterprises (Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Banks), citing the need to:
"...reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally."
The Fed initially expected to only purchase up to $500 billion in agency MBS's, but announced on March 18, 2009 that it would have to continue such purchases after reaching the $500 threshold, citing the risks of low inflation and the continued need to support mortgage lending and housing markets. The threshold for agency MBS purchases was raised to $1.25 trillion, an amount the Fed has not changed since.
"The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010."
Considerable debate over the past several weeks has focused on whether or not private markets are ready to begin picking up the slack in purchasing these assets.
It is important to note that the Fed has not only purchased agency MBS's to help keep them afloat, but has also purchased over $165 billion in agency debt.
We will continue to track Fed activities at Stimulus.org.