Observers have come to understand that Bernanke is not concerned, or at least pretends not to be concerned with the size of the open market account; nor is he concerned with finessing a reversal.
Fed studies such as this one http://www.federalreserve.gov/pubs/feds/2013/201301/201301pap.pdf provide the support for such a view.
When the time comes the plan is to 1) stop reinvesting open mkt account payments of principal, 2) change “forward guidance” rhetoric in preparation for lifting FF’s, 3) lift FF’s or perhaps interest on reserves, 4) sell securities and 5) keep it up until the balance sheet is “normalized,” in two to three years.
Key for most of us is to convert any policy change to the bottom line. That exercise lies ahead. It will be centered on exploiting the world market crowd’s over-reaction to change in Fed intent.
And finally, Bernanke in recent testimony denied any concern with bubble creation – naturally. In fact his experiment was never worth the cost, for how much more economically vibrant we would be today if we had been spared an activist Fed - a Fed which for example blows out its balance sheet but pays banks to do nothing with the dough (stealth bailout); a Fed which on a whim targets housing and forces funds in that direction, postponing the market-based adjustment in housing prices that is needed to balance supply and demand; a Fed which in keeping US borrowing rates in the cellar enables politicians to go on as before.
This stuff amounts to little more than a sedative.
Robert Craven
Fed studies such as this one http://www.federalreserve.gov/pubs/feds/2013/201301/201301pap.pdf provide the support for such a view.
When the time comes the plan is to 1) stop reinvesting open mkt account payments of principal, 2) change “forward guidance” rhetoric in preparation for lifting FF’s, 3) lift FF’s or perhaps interest on reserves, 4) sell securities and 5) keep it up until the balance sheet is “normalized,” in two to three years.
Key for most of us is to convert any policy change to the bottom line. That exercise lies ahead. It will be centered on exploiting the world market crowd’s over-reaction to change in Fed intent.
And finally, Bernanke in recent testimony denied any concern with bubble creation – naturally. In fact his experiment was never worth the cost, for how much more economically vibrant we would be today if we had been spared an activist Fed - a Fed which for example blows out its balance sheet but pays banks to do nothing with the dough (stealth bailout); a Fed which on a whim targets housing and forces funds in that direction, postponing the market-based adjustment in housing prices that is needed to balance supply and demand; a Fed which in keeping US borrowing rates in the cellar enables politicians to go on as before.
This stuff amounts to little more than a sedative.
Robert Craven
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