Much of the Federal Reserve's mortgage bond holdings are tied to the pandemic boom it helped create. Getting repaid is going slower than expected.
The Federal Reserve fired off a smaller interest rate increase on Wednesday, while hinting it might soon be toning down its inflation fight, even before it hardly puts a dent in its pile of mortgage bond holdings.
While Powell conceded that the disinflation process has begun, he also said the Fed’s overall battle to keep inflation ticking lower from a 40-year high has yet to be won. “We need to complete the job.” Refinancing activity also slowed to a trickle because many existing homeowners already refinanced at fixed rates below 3.5%, Cudzil said, a trend he thinks is unlikely to reverse soon, given the Fed’s promise to keeps rates high for sometime.
Tighter financial conditions has not stopped the central bank from hitting its $60 billion monthly caps to shrink its Treasury holdings, which totaled around $5.4 trillion as of late January . But cutting back on its $2.6 trillion pile of agency mortgage bonds has been trickier.
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