Bernanke outlines the Fed’s easy money exit strategy?
Over the past week, America’s banks have had a bumper earning season, in part courtesy of the Federal Reserve’s accommodative monetary policy.
Even before this week, a number of market pundits (including me) began to wonder aloud whether the Fed had any strategy with which to remove all of the excess liquidity it has created to deal with the credit crisis.
Finally, Ben Bernanke delivered the goods in an Op-Ed in today’s Wall Street Journal, signalling a decent overall strategy (including paying interest on reserves which I outlined here in “S.F. Fed chief Yellen tells inflationistas to pipe down”).
Most of the chatter started after yields on long-dated US treasury securities began to rise, with the 10-year hitting levels over 3.7%. I first mentioned this in my post “How will the Fed withdraw all that liquidity?” after Morgan Stanley’s David Greenlaw made some interesting comment in that regard.
As to the specific tools the Fed intends to use, here’s how Ben Bernanke put it (I have added emphasis to the most important bits):