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As the Federal Reserve raises rates in an effort to stifle inflation, what are the implications for US mortgage holders? Thanks to the quantitative easing (QE) programs employed by the Fed after the global financial crisis (GFC), adverse effects on these borrowers have been confined.

A program aimed at lowering rates and stimulating the economy

In the wake of the GFC, the Fed initiated QE, purchasing Treasurys and agency mortgage-backed securities (MBS) to help lower interest rates, stimulate borrowing and increase real economic activity. Agency MBS figured prominently in the program. The Fed purchased, in gross, $1.24 trillion of MBS in QE1, $0 MBS in QE2, $800 billion in QE3, and an unprecedented $3 trillion in QE4.[i] (Note: In QE2, the Fed reinvested approximately $242 billion of MBS principal payments.)[ii]

In the agency MBS sector, the Fed used large-scale purchases of MBS via QE as a transmission mechanism to lower mortgage rates and help spur the housing market and ease consumer debt burdens.