On August 10, 2010, the Federal Open Market Committee directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities (agency MBS) in longer-term Treasury securities. The most recent H.4.1 data release indicates that outright holdings of domestic securities in the System Open Market Account (SOMA) totaled $2.054 trillion as of August 4, 2010. The Desk will seek to maintain the face value of outright holdings of domestic securities in the SOMA at approximately this level....The important points to keep in mind here are that although the Fed holds sizable quantities, make that very sizable ($2.04 trillion), most of the securities are 15 year and 30 year securities at original issue. This means most are not likely to be paid off for at least 5 years, probably much longer. Money to the Fed will flow as the result of refinancings and other prepayments.
The Desk will concentrate its purchases in the 2- to 10-year sector of the nominal Treasury curve, although purchases will occur across the nominal Treasury coupon and TIPS yield curves. The Desk will typically refrain from purchasing securities for which there is heightened demand or of which the SOMA already holds large concentrations.
B of A's Jeffrey Rosenberg is estimating that in the next 12 months $340 billion in MBS funds will be reinvested. If it does turn out to be this high. It could be very significant. This is roughly 17% of the total MBS instrument held by the Fed. It is also, and most important, equal to 4% of the money supply (M2). A 4% increase in the money supply, in and of itself is not enough to manipulate the economy into a pseudo-boom. However, it might be enough if the normal multiplier effect takes hold. Remember, if the Fed doesn't but directly from the Treasury in some kind of circle jerk to funnel money to Freddie and Fannie so that Freddie and Fannie give it right back to the Fed, and it doesn't appear that they are, then what the Fed is pumping into the system is super-money.