Fed Plans to Eliminate MBS from Balance Sheet

I made a comment over at Slope yesterday about the Fed selling off its MBS securities to drive down home prices. I wasn't thinking about the Fed minutes, rather that if the Fed is serious about nipping inflation, selling off the MBS to cool housing is obviously a smart strategy. Today:

Some participants noted that under the proposed approach to running off Treasury and agency securities primarily through adjustments to reinvestments, agency MBS holdings would still make up a sizable share of the Federal Reserve's asset holdings for many years. Participants generally agreed that after balance sheet runoff was well under way, it will be appropriate to consider sales of agency MBS to enable suitable progress toward a longer-run SOMA portfolio composed primarily of Treasury securities. A Committee decision to implement a program of agency MBS sales would be announced well in advance.

They aren't going to accelerate sales right now, but sales are going on the table. If inflation remains high, they will push those sales up because it would have an outsized impact on inflation.

As for the market reaction, it all depends on the Fed's credibility. If stocks rally, the Fed isn't credible. The market doesn't believe it will follow through or that what has been announced isn't enough. It appears the Fed is building a public case for doing more and restoring its credibility as an inflation fighter, but thus far the stock market isn't buying it.