Bernanke in the Wall Street Journal on Exit Strategies
July 21st, 2009 1:47 am | by John Jansen |Chairman Bernanke (in an unusual move ) discusses exit strategies from the Fed’s current policy stance. I thought it was unusual as the piece is in the Wall Street Journal on the day that the Chairman will testify before Congress on the economic outlook and monetary policy.
The article is rather pedestrian and does not divulge any novel approaches. It is pretty standard stuff with reliance on paying higher rates of interest on reserve accounts or employing traditional matched sales.
I would also be remiss if I failed to note that at both the beginning and the end of the article that the Chairman noted that funds would remain low for an extended period of time and economic conditions did not warrant shrinkage of the Fed balance sheet at the present time.
6 Responses to “Bernanke in the Wall Street Journal on Exit Strategies”
By Dr.Dan on Jul 21, 2009 | Reply
JOKE OF THE DAY :
Fourth, if necessary, the Fed could reduce reserves by selling a portion of its holdings of long-term securities into the open market.
By BL on Jul 21, 2009 | Reply
Absent some external supply shock, the only way we’re getting inflation is if the economy improves, and if the economy improves, so will the market and tax receipts, and the Fed could reasonably sell its securities, no?
BL
By mattj on Jul 21, 2009 | Reply
the thing i noted about this is that he puts a speed limit on the pace of balance sheet reduction = 100bn to 200bn per year.
it’s therefore likely that the Fed will lift their depo rate to immobilize the excess reserves before they have shrunk their balance sheet.
the message i got was that accommodative policy being maintained might mean liquidity programmes are retained, with a higher depo rate.
this suggests that swap spreads might widen as they tighen, as the Fed will jam up libor via their depo rate – but not market yields.
it could be that you are right JJ, the Fed may not sell a single asset. they may just use their depo rate to steer the market about.
the RBA used a similar combination of facilities (term deposits etc) to immobilise reserves when it’s balance sheet was swollen in Q4.
By jg on Jul 21, 2009 | Reply
The Fed hired a PR firm a few months back. They’re trying to improve the Feds image. There was another article in this weekends WSJ which
was short on substance,(pedestrian) but ended with him sitting on the porch of his childhood home in (Alpharetta?) Georgia. Pfft.