How to Understand “Fed Tapering” 101

January 2022

I’m sure you can’t have missed the term “Fed tapering” in the news over the last several months. Even though it sounds a little bit like “tapeworm,” it’s something relatively more benign. It’s also important to all of us in the real estate and finance-related industries.

As you’re no doubt aware, the Federal Reserve stepped in during COVID-related issues and began a program of buying hundreds of billions of dollars in Treasury bonds and Mortgage-Backed Securities (MBS).

These actions served to hold the prices of those markets higher and keep the rates very low.

In this article we find information about what to expect as the Fed begins backing away from both buying heavily in the bond markets and holding the Federal Reserve Funds rates low.

The short of it: Rates are going to rise.

The author shares:

“… the Fed’s $8.7 trillion balance sheet increased by just $2 billion over the past four weeks, with Treasury holdings up $52 billion and MBS actually reduced by $23 billion. Over the past 12 months, Treasury holdings have expanded by $978 billion while MBS has risen by $567 billion.

Under the new terms of a program also known as quantitative easing, the Fed would accelerate the decline of its holdings until it is no longer adding to its portfolio. That would bring QE to an end in the spring and allow the central bank to raise rates any time after. The Fed has said it likely would not hike rates and continue buying bonds simultaneously, as the two moves would work at cross purposes.

From there, the Fed at any time could start reducing its balance sheet either by selling securities outright, or, in the more likely scenario, begin allowing the proceeds of its current bond holdings to run off each month at a controlled pace.”

The policy makers at the Federal Reserve hope to slow the rate of inflation without causing a huge spike in rates for things such as mortgages, automobile, and consumer lending.

This could signal a period of turbulence until these adjustments are metabolized by the markets.

I’d like to add that when the real estate markets slow down because of rising rates, this often causes an industry shakeout as those who showed up to the hot market party exit back to easier money elsewhere.

Those of us who are committed professionals have the opportunity to connect more deeply with our top clients and referral sources – and prove why we deserve that “professional” title.

Would you like to schedule time together as the new year begins and discuss how we can nurture our most important relationships?

Please drop me an email or call if you have any questions – or someone you know is in need of expert advice. I love to help those you care about. If you have a referral please click the button down below. Your referrals are the heart and lifeblood of my business.



Omar Khamisa
Mission San Jose Mortgage
2111 W. March Lane, Suite B100
Stockton, CA 95207
Office: 888- 848-7199
Mobile: 510-648-5535
Fax: 209-434-2311
NMLS: 369325


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