When will Fed end quantitative easing or QE3 ?

BROOKINGS, Ore. - May 17, 2013 - PRLog -- Hedge fund billionaire David Tepper has become one of a growing group calling for the Federal Reserve to begin tapering its asset purchase program, or QE. Under the leadership of Ben Bernanke, the Fed has delivered unprecedented monetary support to the economy, keeping interest rates at zero. And pledging to continue to do so, for a long time, with the Fed‘s bond buying program of an open-ended $85 billion per month purchase of Treasuries and mortgage-backed securities.

Tepper picked up the baton where John Hilsenrath, Fed mouthpiece and WSJ reporter left it last week. Hilsenrath said Fed officials had already drown out a map as to how they would unwind QE by slowing down the speed of their purchase program. Tepper is calling for the Fed to end its program now, or at the June FOMC meeting. The Fed may be attempting to cool down the raging stock market.

Philadelphia Fed President Charles Plosser recently said his forecast for falling unemployment warranted ending the bond purchases this year. Dallas Fed President Richard Fisher and Richmond President John Lacker agree the Fed should stop its risky purchase of mortgage bonds. San Francisco Fed President John Williams, a moderate dove, recently said the Fed may reduce its $85 billion in monthly bond-buying as early as this summer amid signs the economy is gaining strength.

However, Fed watcher Philip Orlando, recently stated it is unlikely the Fed is going to tighten monetary policy before the end of this year at the earliest. The reality is Ben Bernanke and Janet Yellen, as chairman and vice chair of the Fed, have enough dove votes on the FOMC to set policy. Voting members, Evans, Rosengren, Dudley, Rasken, Stein, Tarullo, Yellen and Bernanke are consistently Keynsian doves. Lacker and Bullard are hawks, and do not have enough votes to set policy, in fact John Lacker, does not even vote.

The Chairman normally sets Fed policy, and Ben Bernanke recently made a speech saying that in light of the moderate pace of the recovery and the continued high level of economic slack, dialing back accommodation with the goal of deterring excessive risk-taking in some area poses its own risks to growth, price stability, and ultimately, financial stability. In other words he believes making an error on the side of too much inflation, rather than hurting people out of work. Bernanke said the Fed exit strategy should avoid a crash by holding assets on its balance sheet for a longer period than expected.

Boston Fed president Eric Rosengren said the FOMC’s inflation forecast of l.6% this year and 1.9% for next year, provide the flexibility to keep the program running throughout 2013, and adjust the rate of purchases up or down depending on how the US economy evolves.

The Fed’s Jackson Hole, Wyoming symposium is one of the most sacred of annual Fed meetings. In August, it is here that the Fed historically hint at any new policy. Bernanke, whose term is due to expire just five months after this year’s Jackson Hole gathering, will be absent for the first time in 25 years, “due to a scheduling conflict”. Apparently Bernanke will not use Jackson Hole to signal the end of QE3. If Vice Chair, Janet Yellen, is the keynote speaker at Jackson Hole this year, that would just about clinch her as being Bernanke’s heir apparent, and the future dove who will decide when to exit the Fed’s experiment in unconventional monetary stimulus

For more information of the Federal Reserve and the Culture War:

Teapartyculturewar.com

“Tea Party Culture War: a clash of worldviews”, by economist,

Dr. Stephen Johnston