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Members of the Federal Reserve are debating how quickly to reduce the central bank’s portfolio of bonds, without starting a recession.

Heading into the second quarter of 2022, the balance of Federal Reserve’s assets is almost $9 trillion. The majority of these assets are securitized holdings of government debt and mortgages. Most were purchased to calm investors during the subprime mortgage crisis in 2008 and 2020’s pandemic.

“What’s happened is the balance sheet has become more of a tool of policy.” Roger Ferguson, former vice chairman of the Federal Reserve Board of Governors, told CNBC. “The Federal Reserve is using its balance sheet to drive better outcomes in history.”

The U.S. central bank has long used its power as a lender of last resort to add liquidity to markets during times of distress. When the central bank buys bonds, it can push investors toward riskier assets. The Fed’s policies have boosted U.S. equities despite tough economic conditions for small businesses and ordinary workers.

Kathryn Judge, a professor at Columbia Law, says the Fed’s stimulus is like grease for the gears of the financial system. “If they apply too much grease too frequently, there are concerns that the overall machinery becomes risk-seeking and fragile in alternative ways,” she said to CNBC in an interview.

Analysts believe that the Fed’s choice to raise interest rates in 2022 then quickly reduce the balance sheet could set off a recession as riskier assets are repriced.

Watch the video above to learn more about the recession risks of the Fed’s monetary policies.

After rising steadily for months, mortgage rates made a U-turn last week, and borrowers jumped to take advantage. The crisis in Ukraine rattled financial markets and caused a run on the relatively safer bond market. Yields fell and mortgage rates followed.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 4.09% from 4.15%, with points remaining unchanged at 0.44 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. The rate was 83 basis points lower one year ago.

As a result, demand for refinances jumped 9% last week compared with the previous week, but application volume was still half of what it was the same week one year ago, when rates were lower.

“Mortgage rates dropped for the first time in 12 weeks, as the war in Ukraine spurred an investor flight to quality, which pushed U.S. Treasury yields lower,” said Joel Kan, an MBA economist. “Looking ahead, the potential for higher inflation amidst disruptions in oil and other commodity flows will likely lead to a period of volatility in rates as these effects work against each other.”

Applications for a mortgage to purchase a home increased 9% from the previous week but were 7% lower than the same week one year ago. Homebuyers are less sensitive to weekly rate moves, and the jump in demand was likely due more to increased supply hitting the market for the spring season. Slightly lower mortgage rates didn’t hurt of course, especially given how high home prices are now.

“The average loan size remained close to record highs, with higher-balance loan applications continuing to dominate growth,” added Kan.

Mortgage rates surged back sharply to start this week, jumping more than 25 basis points in just two days, according to Mortgage News Daily. Investors are moving away from bonds, causing yields to rise, despite the ongoing crisis in Ukraine, which caused rates to drop at the outset.

“While the Ukraine situation does indeed drive demand for bonds, the associated inflation implications are simultaneously pushing demand away,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “The net effect was a move back up to the highest mortgage rates since early 2019.”