jmdrake
02-09-2010, 10:20 PM
Unfortunately that doesn't mean the Fed's "exit" from our lives or his "exit" from the Fed.
http://www.channelnewsasia.com/stories/afp_world_business/view/1036564/1/.html
Bernanke to explain Fed exit strategy, with caution
Posted: 10 February 2010 1130 hrs
Photos 1 of 1
Ben Bernanke
WASHINGTON: Federal Reserve chairman Ben Bernanke is expected to offer a broad vision for the US central bank's "exit strategy" from its unprecedented stimulus effort for an economy in a precarious recovery.
Bernanke was set to appear before the House Financial Services Committee in a congressional hearing originally scheduled for Wednesday, but postponed due to winter storms affecting Washington.
His prepared remarks, however, were expected to be released at the originally scheduled time of the hearing.
The hearing on "Unwinding Emergency Federal Reserve Liquidity Programs and Implications for Economic Recovery" could provide the most detailed explanation to date on the exit strategy from Bernanke, who last month won a tough confirmation battle for a second four-year term.
Analysts said Bernanke must walk a fine line by reassuring lawmakers that the Fed can execute its strategy but without roiling financial markets or boxing himself into any specific measures.
"I don't think he will reveal a timeline for raising rates, or go beyond what the Federal Open Market Committee already said," said BMO Capital Markets senior economist Sal Guatieri.
Guatieri said Bernanke was likely to repeat the FOMC language calling for exceptionally low interest rates for an "extended period".
"We think an extended period probably means several months, so it would be around September before we see an increase in rates," he said.
"Nonetheless the Fed wants to prepare the markets and provide a road map for the unwinding of more than US$1 trillion in excess liquidity."
Under Bernanke, the Fed has cut its base federal funds rate to a record low range of zero to 0.25 per cent and created an array of programs to pump money into the financial system to restore credit flows, sometimes called quantitative easing.
According to analysts, the first step from the Fed will be to "mop up" the excess liquidity.
One key tool in the Fed arsenal is paying banks to keep its deposits at the Fed under authority in a 2008 law. By boosting this rate, the Fed can set a floor on interest rates and keep some money out of circulation in the economy.
In a more delicate task, the Fed also must at some point start selling some of the hundreds of billions of dollars of mortgage securities and other bonds it bought to steady the financial system.
The Fed has indicated it will stop purchasing these assets by the end of March. But Guatieri said selling is unlikely to begin for a number of months, or "until Fed is sure the housing market is on a solid foundation."
A number of analysts said the Fed must move prudently to avoid withdrawing stimulus too soon.
"There is a growing concern about a double-dip recession," said Sung Won Sohn, economist at California State University.
"Toward the end of 2010, the bulk of the money from the economic stimulus program will be gone. The Federal Reserve will have embarked on an exit strategy and start hiking the interest rate by then. Consumers are not likely to go on a spending spree anytime soon. Even if they were willing to spend, credit won't be available to support spending."
But Morgan Stanley economists argued what is holding back the recovery is uncertainty about policy, and that some more clarity may be beneficial.
"Uncertainty can swamp the effects of lower interest rates, transfers or tax cuts," said a note from economists Richard Berner, David Greenlaw, Ted Wieseman and David Cho.
"Reducing policy uncertainty now could be a tonic for growth."
Joseph LaVorgna, US economist at Deutsche Bank, said the ultralow interest rates are helping the economy get on a sustainable growth track, allowing the Fed to hike rates later this year.
"Super-accommodative monetary policy makes it more likely in our view the economy surprises to the upside over the next four quarters," he said.
"Even if the Fed begins raising rates later this year, as we expect, the virtuous circle that the economy appears to have entered should last for some time."
- AFP/sc
http://www.channelnewsasia.com/stories/afp_world_business/view/1036564/1/.html
Bernanke to explain Fed exit strategy, with caution
Posted: 10 February 2010 1130 hrs
Photos 1 of 1
Ben Bernanke
WASHINGTON: Federal Reserve chairman Ben Bernanke is expected to offer a broad vision for the US central bank's "exit strategy" from its unprecedented stimulus effort for an economy in a precarious recovery.
Bernanke was set to appear before the House Financial Services Committee in a congressional hearing originally scheduled for Wednesday, but postponed due to winter storms affecting Washington.
His prepared remarks, however, were expected to be released at the originally scheduled time of the hearing.
The hearing on "Unwinding Emergency Federal Reserve Liquidity Programs and Implications for Economic Recovery" could provide the most detailed explanation to date on the exit strategy from Bernanke, who last month won a tough confirmation battle for a second four-year term.
Analysts said Bernanke must walk a fine line by reassuring lawmakers that the Fed can execute its strategy but without roiling financial markets or boxing himself into any specific measures.
"I don't think he will reveal a timeline for raising rates, or go beyond what the Federal Open Market Committee already said," said BMO Capital Markets senior economist Sal Guatieri.
Guatieri said Bernanke was likely to repeat the FOMC language calling for exceptionally low interest rates for an "extended period".
"We think an extended period probably means several months, so it would be around September before we see an increase in rates," he said.
"Nonetheless the Fed wants to prepare the markets and provide a road map for the unwinding of more than US$1 trillion in excess liquidity."
Under Bernanke, the Fed has cut its base federal funds rate to a record low range of zero to 0.25 per cent and created an array of programs to pump money into the financial system to restore credit flows, sometimes called quantitative easing.
According to analysts, the first step from the Fed will be to "mop up" the excess liquidity.
One key tool in the Fed arsenal is paying banks to keep its deposits at the Fed under authority in a 2008 law. By boosting this rate, the Fed can set a floor on interest rates and keep some money out of circulation in the economy.
In a more delicate task, the Fed also must at some point start selling some of the hundreds of billions of dollars of mortgage securities and other bonds it bought to steady the financial system.
The Fed has indicated it will stop purchasing these assets by the end of March. But Guatieri said selling is unlikely to begin for a number of months, or "until Fed is sure the housing market is on a solid foundation."
A number of analysts said the Fed must move prudently to avoid withdrawing stimulus too soon.
"There is a growing concern about a double-dip recession," said Sung Won Sohn, economist at California State University.
"Toward the end of 2010, the bulk of the money from the economic stimulus program will be gone. The Federal Reserve will have embarked on an exit strategy and start hiking the interest rate by then. Consumers are not likely to go on a spending spree anytime soon. Even if they were willing to spend, credit won't be available to support spending."
But Morgan Stanley economists argued what is holding back the recovery is uncertainty about policy, and that some more clarity may be beneficial.
"Uncertainty can swamp the effects of lower interest rates, transfers or tax cuts," said a note from economists Richard Berner, David Greenlaw, Ted Wieseman and David Cho.
"Reducing policy uncertainty now could be a tonic for growth."
Joseph LaVorgna, US economist at Deutsche Bank, said the ultralow interest rates are helping the economy get on a sustainable growth track, allowing the Fed to hike rates later this year.
"Super-accommodative monetary policy makes it more likely in our view the economy surprises to the upside over the next four quarters," he said.
"Even if the Fed begins raising rates later this year, as we expect, the virtuous circle that the economy appears to have entered should last for some time."
- AFP/sc