Bernanke’s Exit Strategy
In testimony before Congress, the Fed chief laid out a strategy by which the Fed will soak up the unprecedented liquidity in the U.S. financial system. He said he’ll focus on raising rates, especially those the Fed pays on reserve balances held by depository institutions. Bernanke said he may also employ reverse repurchase agreements—that is, selling securities held by the Fed, with an agreement to buy them back later. The trick will be to sop up excess liquidity without stifling what seems to be a nascent recovery. Bernanke said there’s little prospect the Fed will raise rates anytime soon from their near-zero level. He noted that rising levels of unemployment could still choke consumer spending, with attendant harm to the economy’s overall health.
Source: BusinessWeek
In testimony before Congress, the Fed chief laid out a strategy by which the Fed will soak up the unprecedented liquidity in the U.S. financial system. He said he’ll focus on raising rates, especially those the Fed pays on reserve balances held by depository institutions. Bernanke said he may also employ reverse repurchase agreements—that is, selling securities held by the Fed, with an agreement to buy them back later. The trick will be to sop up excess liquidity without stifling what seems to be a nascent recovery. Bernanke said there’s little prospect the Fed will raise rates anytime soon from their near-zero level. He noted that rising levels of unemployment could still choke consumer spending, with attendant harm to the economy’s overall health.
Source: BusinessWeek
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