So in the MBS market, the Federal Reserve is saying one thing but is actually doing the complete opposite.
The only difference is that these aren’t called ‘MBS purchases’ but ‘reinvestments’. Whatever they want to call it, the Federal Reserve will still pump in excess of $45B per year in the MBS market so the life support will still be switched on in the foreseeable future. And the Federal Reserve has no official mandate to take the money back out of the market when the MBS mature. Theoretically, the central bank would be allowed to reinvest the principal amounts as well as the interest payments on these amounts in infinity. Even though market analysts at for instance Deutsche Bank expect the Fed to phase these investments out by 2017, the central bank is under no real obligation to do so.
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