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The article discusses growing confidence on the part of investors that U.S. mortgage rates won't rise sharply once the Federal Reserve ends its $1.25 trillion program of buying mortgage-backed securities (MBS). Rising rates would cause MBS prices to fall. However, some investors believe buyers will materialize should the MBS market show weakness.

The article discusses the U.S. Federal Reserve's balance sheet. Purchases of Treasury bonds, mortgage-backed securities and other instruments have caused assets held by the Fed to more than double, and increased the U.S. monetary base to almost $2 trillion. Subdued demand for loans and an unwillingness among banks to lend, though, have both kept inflation in check and impeded an economic recovery.

The article discusses the U.S. Federal Reserve's holdings of mortgage-backed securities (MBS). Totaling some $740 billion, these MBS could potentially be used to combat inflation. By selling MBS the Fed would cause interest rates to rise, thus tamping down the housing market and by extension the U.S. economy.

The article discusses efforts by the U.S. Federal Reserve to support the economy. To keep mortgage rates low the Fed had purchased substantial volumes of Treasury and mortgage backed securities, as well as debt issued by Fannie Mae and Freddie Mac. Kenneth Rogoff of Harvard University observes that such interventions by the Fed are apt to continue for at least two more years.

The article discusses an alternative to a plan advocated by U.S. Federal Reserve chairman Ben Bernanke that would have the U.S. government buy distressed mortgage-backed securities from financial institutions for more than market value. A different approach would be for the government to pay market value, then receive equity stakes in the institutions in exchange for additional cash.

The article reports that the U.S. Federal Reserve Board (Fed) is considering whether to use cash from maturing mortgage bonds to buy additional securities. Expectations had been that the Fed would let its $2.3 trillion inventory of mortgage securities decline. However, it may decide to purchase more in an effort to assist a weakening economic recovery in the U.S.