Fed officials leery of unconventional policies

Reuters via Fidelity.com ^ | March 26, 2010 | Pedro Nicolaci da Costa (Reuters)

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WASHINGTON (Reuters) - The Federal Reserve's unprecedented dose of stimulus to the economy during the recent financial crisis complicates the task of pulling back when the time is right, top central bank officials said on Friday.

Fed Board Governor Kevin Warsh argued that tame inflation readings today should not make policymakers complacent about the risk of future price increases.

"Inflation expectations will be anchored until they are not," Warsh said in a speech in New York. "Central bankers would be prudent to keep a very open mind about shocks that could happen domestically and overseas."

Ben Bernanke, Fed chairman, told Congress on Thursday that the central bank is aware of such risks and has the tools necessary to withdraw monetary stimulus in time.

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The M1 money supply was $1,400B in August 2008. In February 2010 it was $1,710B, or about a 23% increase.

Some suggest the Fed should begin selling its Mortgage Backed Securities. How much would they have to be discounted given today's economic realities and runaway federal spending?

[Oldexpat]

Inflation is in check until it is out of control. Their chanced of getting this transition right with Obama and the Rat congress spending like there is no tomorrow are slim.
Get ready for a big dose of inflation.

[JoeFromSidney]

It takes about 18 months for a spike in the money supply to work its way through the economy. That's when the prices suddenly start climbing. Inflation is already built into the economy, because of the increase in the money supply. It's inevitable. Bernanke won't dare pull money out. First, he's afraid of deflation. Second, Congress will squawk as the economy slows. We're in for a bout of stagflation like the early 1980s.

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We're in for a bout of stagflation like the early 1980s.

Add to that high unemployment.