For nearly a decade the Federal Reserve has been using its arsenal of money-manipulating tools as a way to manipulate its monetary policy, and it appears it is ready to back off on that effort. The ripple effect of any changes it pursues could have negative ramifications for the U.S. housing recovery. Since the first of the year, Fed officials have talked about paring back the central bank’s bond holdings which were amassed during the financial crisis and has grown to a $1.75 trillion portfolio of mortgage-backed securities. Over the years, its purchases have been instrumental in building positive momentum for the housing market.

According to a report by Bloomberg, 30-year bonds composed of Fannie Mae-backed mortgages have only been about a percentage point higher than the average yield for five- and 10-year Treasuries over the last two years. , According to Bloomberg, that is less than the gap during the housing boom. The gap could widen if the Fed pulls back from the market. Marty Young, a fixed-income analyst at Goldman Sachs, noted that once the Fed actually starts to slow its MBS reinvestments, the spread would widen at least 0.2 to 0.25 percentage points.

“The biggest buyer is leaving the market, so there will be less demand for MBS.”

As the Federal Reserve tapers its purchases of mortgage bonds, it opens up this market to private investment. It also may give the central bank additional flexibility to tighten policy, particularly if President Donald Trump’s spending plans stir more economic growth and inflation. As noted by Munish Gupta, a manager at Nara Capital, a new hedge fund being started by star mortgage trader Charles Smart, the consequences for the U.S. housing market can’t be ignored.

“The Fed has already hiked twice and the market is expecting more. Tapering is the next logical step.”

Recent shifts in mortgage interest rates have had an impact on housing demand across the country. According to data from the National Association of Realtors, sales of previously-owned homes declined more than expected in December amid fill-year sales figures that were the strongest in a decade. Tim Steffen, a financial planner at Robert W. Baird & Co. in Milwaukee, told the Fort Wayne Journal Gazette that it has created uneasiness amid buyers.

“People are starting to ask the question, ‘Gee, did I miss my opportunity here to get a low-rate mortgage?’ I tell them that rates are still pretty low. But are rates going to go up? It certainly seems like they are.”

As a result of its decade-long monetary policy, the Fed may have boxed itself into a corner. The central bank can acknowledge that it must reduce its balance sheet with an economic recovery in full gear. It had always maintained that these maneuvers were temporary steps to stop the bleeding of the financial crisis. However, the result may be a problem that is more difficult to wrap up.