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Fed Official Outlines Plan to Sell Mortgage-Backed Securities

Sudeep Reddy of The Wall Street Journal interviews James Bullard, president of the Federal Reserve Bank of St. Louis — a voting member of the Federal Open Market Committee, which sets the nation’s short-term interest rate.

Bullard says that the Fed might start selling off mortgage-backed securities — it owns around $1.2 trillion of them, most purchased from Fannie Mae and Freddie Mac — later this year, using a “reverse taper.” The Fed would start selling nominal amounts, and gradually increase the volume to figure out what the market can bear.

Mr. Bullard acknowledged that longer-term rates could rise “a little bit” but said the outcome would depend on how much is sold and over what period. He suggested starting with $100 billion in sales to assess the market impact. “It would still be very accommodative,” he said, but would allow the Fed to start normalizing its balance sheet.

“I would start slow and then move based on the economy,” Mr. Bullard said. “I would want to ensure markets that you would do it slowly over a longer period of time.”

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