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Bernanke Hints at Move to Sell Mortgage-Backed Securities

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Federal Reserve Chairman Ben Bernanke hinted Thursday, March 25, that the U.S. central bank might start selling some of its $1.25 trillion in holdings of mortgage-backed securities as economic conditions began to improve.

In testimony before the House Financial Services Committee, which had been postponed because of a snowstorm on Feb. 10, Bernanke said that reducing the Fed’s portfolio would “improve the Federal Reserve’s control of financial conditions” so that it could tamp down any inflationary trends.

Bernanke said that the timing of the Fed’s sale of its assets would “depend on economic and financial developments and on our best judgments,” so as to improve employment and maintain price stability.

The Fed has been buying up mortgage-backed securities since December 2008 to help push interest rates down in order to stabilize the faltering housing market. Bernanke has to proceed carefully with shrinking the Fed’s bloated balance sheet so as not to disrupt the Fed’s policy on low mortgage rates.

In Bernanke’s written testimony, which was released after the Feb. 10 postponement, he concluded, “The economy continues to require the support of accommodative monetary policies. However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus.”

To read the full text of Bernanke’s written testimony, please click here.

To read about Bernanke’s view of the causes of the housing bubble in a story from the archives of InvestmentAdvisor.com, please click here.


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