Business

The Fed: Is There An Exit Strategy for Quantitative Easing?

Business

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fed seal

The Fed has signaled plans to continue the current phase of Quantitative Easing (QE), which currently entails $85 billion of bond purchases per month, split between mortgage-backed and Treasury securities (Bloomberg).

But there are signs of increased concern behind the scenes, as the Fed’s Board of Governors contemplates the staggering size of the central bank’s balance sheet, now $2.93 trillion. Several Fed grandees have indicated they would like to see an exit strategy. Chairman Bernanke continues to champion the program, noting both the high level of unemployment and the long-term nature of much of it:

Bernanke said the nation’s 7.8 percent unemployment rate in December “is not an acceptable situation” especially when 40 percent of the jobless haven’t worked for six months or more. There are “too many people whose skills and talents are being wasted,” he said. “We’ll be assessing the impact of our actions on financial market conditions and looking to see how those link up to developments in labor markets and in the broader economy.”

Bernanke’s last remarks are a nod to those in the Fed who are concerned about the potential for inflation if the central bank has miscalculated the need for additional stimulus. The situation has become more complicated as fiscal policy, thanks to the tax increases embedded in the fiscal cliff deal, is now pulling in a different direction.

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