The Great Debate

The Fed needs to get its wallet out

Christopher Swann– Christopher Swann is a Reuters columnist. The views expressed are his own –

The Federal Reserve is putting on a brave face about the rise in Treasury yields.

At the moment, the Fed can afford to put off bringing out the big cannons for a little while. If market optimism is overdone, a few weak economic releases would soon send interest rates plunging again. If the market is right, then higher rates are justified and the economy will cope.

But Fed policymakers, who next meet in two weeks, should be getting the artillery ready. They have already promised to buy as much as $300 billion of Treasuries before September.

Unless rates come down swiftly, this limit should be increased substantially.

So far, the Fed has managed to confound the skeptics of their unconventional monetary policy.

Fed sets out exit strategy

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

Intense criticism of the Fed’s role in the financial rescue program and the decision to triple its balance sheet, including monetizing a portion of the Treasury’s debt, has forced the central bank to issue an unusual defense of its actions (http://www.federalreserve.gov/newsevents/press/monetary/20090323b.htm).

It attempts to placate critics by acknowledging the real risk of inflation, and marks the Fed’s first attempt to set out an “exit strategy” for ending quantitative easing and other credit programs once the crisis is safely passed.