|
 |
 |
|
Republican demands answers on Bernanke's exit strategy
Rep. Jim Jordan (R-Ohio) is demanding that Federal Reserve Chairman Ben Bernanke explain exactly how he plans to wind down the Fed's massive portfolio once its run of bond buying comes to an end.
In a letter sent to Bernanke on Wednesday, Jordan asked for any research the Fed has done on unwinding its burgeoning portfolio, which recently topped $3 trillion — three times its size in 2008, the lawmaker noted.
Jordan noted that the size of such a portfolio could pose "significant problems when the Federal Reserve begins to unwind."
If the sell off is not handled appropriately, the Fed could lose up to $40 billion on the bonds when it reintroduces them to the market, or could even damage the broader economy.
"With these continued concerns about the size of the Federal Reserve's portfolio and the potentially devastating consequences from any unwind, Congress and the public must be fully informed about the Federal Reserve's expectations and actions," he wrote.
The request comes as Republicans are increasingly wary of the Fed's efforts to stimulate the economy. The central bank has kept interest rates near zero since 2008, and has undergone three separate rounds of bond purchases in a further attempt to lower borrowing rates and spur on the economy. The third round of "quantitative easing" is still under way, as the Fed is buying $85 billion of bonds each month, and plans to continue doing so until it sees substantial improvement in the labor market.
Throughout it all, Republicans and Fed skeptics have been sounding the alarm, arguing that these efforts are sowing the seeds for damaging inflation down the road and may be casting harmful economic effects.
In his letter, Jordan contends that the remarkably low interest rates are hurting savers facing paltry rates of return on bank accounts, and retirees who normally rely on interest-bearing accounts for a living. But he was most concerned about how the Fed's policy may be making it easier for Congress to avoid taking tough steps to address the deficit.
"Most strikingly, by maintaining low interest rates, the Federal Reserve has distorted the real cost of the national debt," he wrote.
Bernanke has strongly defended the Fed's policies and rebutted such arguments, claiming that he has the utmost confidence the Fed can safely exit its investments when the time comes. He will have the chance to do that again next week, as he is slated to give regularly scheduled testimony before banking committees in both the House and Senate.
Minutes of the Fed's January meeting, released Wednesday, showed Fed officials were struggling with when exactly they should stop the bond buying. Several members of the Fed's policy-setting committee warned that the central bank may have to begin varying the amount of bond purchases in response to economic conditions, while some warned that the Fed might have to halt the purchases before the labor market is back to the desired strength.
Jordan asked Bernanke to provide all "public and non-public" research done on possible approaches to unwinding. The Fed must provide answers by March 5.
Most Viewed RSS Feed »
