Fed May Reinvest in Mortgage Securities

NEW YORK (TheStreet) -- The Federal Open Market Committee did not uniformly agree about what steps the government should take to provide further support for the U.S. economy if it should weaken further.

The FOMC, the Federal Reserve's policy-setting arm, released minutes Tuesday from its Aug. 10 meeting. Several officials thought the central bank should take additional steps, while a few advised against actions to reinvest cash from maturing mortgage debt into Treasuries.

According to the minutes, most committee members thought "it would be better to reinvest in longer-term Treasury securities than in MBS."

"While reinvesting in Treasury securities was seen as preferable given current market conditions, reinvesting in MBS might become desirable if conditions were to change."

Others cautioned that "reinvesting principal from agency debt and MBS in Treasury securities could send an inappropriate signal to investors about the Committee's readiness to resume large-scale asset purchases."

One argued that reinvesting those repayments would effectually postpone a reduction in the size of the Fed's balance sheet, and "was likely to complicate the eventual exit from the period of exceptionally accommodative monetary policy and could have adverse macroeconomic consequences in future years."

Speaking at the annual Federal Reserve symposium in Jackson Hole, Wy. Friday morning, Federal Reserve Chairman Ben Bernanke conceded that "in many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow and joblessness remains too high."

>>Bernanke: Recovery Slower Than Expected