The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Fed President Bullard is giving a speech on exit strategies for the Fed and begins by saying “monetary policy is very accommodative now…It will remain very accommodative for an extended period…This is appropriate, given low inflation and weak economic conditions.” He believes the liquidity facilities that are in place should “wind down naturally” as they are used less. On asset purchases, he acknowledged the Fed is “printing money” as this is “one way to move inflation higher in an environment where inflation is ‘too low.’ The “short term goal is to avoid a deflation trap in 2009″ but expanding the monetary base “rapidly” is a future threat and said an exit “may have to rely on selling assets as appropriate…a policy feedback rule for asset purchases should be the goal.” I wish there was some mechanism spelled out on the timing of the exit but they are relying on “judgement calls” which I interpret as a form of winging it which I find somewhat unsettling since what they’ve done to the monetary base is “unprecedented in US postwar monetary history,” according to Bullard.