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Sept 23 - Almost any likely path for U.S. interest rates will leave the Federal Reserve owning as much as $600 billion in mortgage bonds a decade from now, according to new U.S. central bank research that could bolster a case for selling the securities outright to meet a goal of a bond portfolio composed mostly of Treasuries.
That means homeowners whose low-rate mortgages underlay the bonds are unlikely to refinance their loans and or sell their homes and look to buy new ones - the so-called"lock-in effect." Balance sheet contraction, known as quantitative tightening , is part of a process of normalizing the overall stance of monetary after the COVID-19 pandemic. The Fed is seeking to reduce liquidity to levels it deems enough to give it firm control over short-term rates and to allow for normal money market volatility, and it remains unsure how far it will have to go to do so.
If interest rates are lower than expected, the 2030 level will still be the same and Fed mortgage holdings will hit $600 billion by the end of 2035.
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