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Official says Fed might buy more mortgage-backed securities

By Neil Irwin
Washington Post Staff Writer
Friday, February 5, 2010; A13

The Federal Reserve would consider reopening its program to support the mortgage market if interest rates spiked or the economy showed new weakness, Federal Reserve Bank of New York President William C. Dudley said in two new interviews.

The Fed is buying $1.25 trillion in mortgage-backed securities in its effort to prop up the economy but has said it will end those purchases March 31.

In interviews with the Nightly Business Report and the Associated Press, Dudley said the time is right to end the program because the economy is growing and because expanding the purchases would make it harder for the Fed to unwind its support down the road.

But he said the Fed might reconsider if rates rose sharply. "Obviously, if mortgage rates were to back up a lot and if that had a big consequence for the economy, then we very well could rethink the issue about whether we wanted to buy more mortgages," Dudley told the Nightly Business Report. He made a similar comment in the AP interview.

The Fed said after its policymaking meeting last week that it "will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets."

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