Fed MBS Buy Tapering Set to Start in January

The Federal Open Market Committee will begin scaling back its mortgage-backed securities purchases in January in a move that may reduce downward pressure on rates somewhat, according to a statement issued Wednesday.

The committee will add to its holdings of agency MBS at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.

It will continue to reinvest principal payments from its holdings of agency debt and agency MBS in agency MBS and roll over maturing Treasury securities at auction.

The Fed’s “sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative,” according to the FOMC’s statement.

“The committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course and the committee's decisions about their pace will remain contingent on the committee's outlook for the labor market and inflation,” according to the statement.