Monday, August 02, 2010

WSJ: FOMC considering reinvesting when MBS Matures

by Calculated Risk on 8/02/2010 11:59:00 PM

From Jon Hilsenrath at the WSJ: Fed Mulls Symbolic Shift

Federal Reserve officials will consider a modest but symbolically important change in the management of their massive securities portfolio ...

The issue: Whether to use cash the Fed receives when its mortgage-bond holdings mature to buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually, as it is expected to do in the months ahead. ...

Buying new bonds with this stream of cash from maturing bonds—projected at about $200 billion by 2011—would show the public and markets that the Fed is seeking ways to support economic growth.
This seems unlikely to happen at the Aug 10th meeting based on Chairman Bernanke's speech this morning, and his testimony to Congress less than two weeks ago.