Fed Plans Eventual Exit from Housing Debt

Federal Reserve officials set a long-term goal to keep only U.S. government securities in their portfolio as they debated how and when to pull back on the most aggressive monetary policy in U.S. history.

Central bankers are planning to eventually remove $1.43 trillion of housing debt from the balance sheet after critics such as Stanford University economist John Taylor accused them of straying beyond monetary policy. Philadelphia Fed President Charles Plosser said yesterday that the Fed’s purchases of housing debt expose it to demands from politicians to support other industries.

Some of the Fed’s emergency actions “blurred the line between monetary policy and fiscal policy, thereby increasing the risk to the Fed’s independence,” Plosser said in a speech. “These policies have veered toward deciding how public money should be allocated across firms and sectors of the economy.”

Policy makers agreed that it “will eventually be appropriate” to “return to holding only securities issued by the U.S. Treasury,” according to minutes of their January 26-27 meeting released yesterday.

Bloomberg