Federal reserve will begin unloading their balance sheet next month. Does that include MBS? What effect will this have on market?

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Yes, it does include MBS as the Fed has been buying a big chunk of the new MBS issuance since 2010…. they tried to reverse in 2016 and 2018 but the credit markets broke and Fed went back to QE.

What is the impact? this is why mortgage interest rates have been going up…. all banks and brokers that originate new mortgages have been selling MBS to the Fed; the private sector demands higher rates for higher risk. Effectively monthly mortgage payment went up 40% since Dec-2021 for same price / same down payment…. Fed will stop buying new MBS, if they really start uploading $1T of their balance sheet by June-2023 (have my doubts), then the stock and housing markets are in big trouble. We will see.

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What was the point in the fed loading up their balance sheet to prop up the market if they’re just going to dump it on our heads right after? Make a quick buck for their buddies?

Fed actions aren’t about the stock market, they’re about broader macro trends. I think a lot of the economic theory they rely on is questionable (though we don’t really have a great view on good alternatives) but that doesn’t mean they’re deliberately messing things up.

Their mandates are employment and inflation. Massive surge of liquidity in covid to support employment. Now pulling it out as employment growth is strong and inflation is high. They’re literally acting in a predictable way in response to their theory and general economic conditions…

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