The Federal Reserve has snapped up $1 trillion of mortgage bonds since March, a record pace of purchasing, as the U.S. central bank tries to blunt the impact of the COVID-19 recession on American homeowners.
The Fed bought about $300 billion of the bonds in each of March and April, and since then has been buying about $100 billion a month. It now owns almost a third of bonds backed by home loans in the U.S. Buying the securities has pushed mortgage rates lower, with the average 30-year rate falling to 2.91% as of last week from 3.3% in early February.
That drop has allowed homeowners to refinance their mortgages, tantamount to giving them a raise by cutting their monthly loan payments. It's also helped consumers buy homes. But the Fed's efforts are causing its balance sheet to balloon, and with the central bank owning so many U.S. home loans, it has unusually high power over setting mortgage rates.
The Fed's purchase efforts started off with a bang on March 15, when it said it was slashing its benchmark interest rate back to zero percent and would purchase "at least" $200 billion of mortgage-backed securities. On March 23, the central bank signaled its willingness to buy near-unlimited amounts of the debt, changing "at least" in its statement to "in the amounts needed."