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WASHINGTON — The Federal Reserve provided most of the money for new mortgages in the United States last year, effectively lending more than $1 trillion to American homeowners.
Vincent Reinhart, a former Fed division head, said reserves could be inflationary.
Now the legacy of that extraordinary intervention is hanging over the central bank as it faces growing demands for an encore to help revive the flagging economy.
While officials and economists generally regard the program as successful in supporting the housing market, it has left the Fed holding a vast pile of mortgage securities — basically i.o.u.’s from homeowners — that it does not want and cannot sell.
Holding the securities could cost the Fed a lot of money and hamper its ability to fight inflation, while selling the securities could drain needed money from the still-weak economy.
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