Friday, October 16, 2009

Fed Can't Wait Too Long for Policy Shift: Volcker

The enormous amounts of liquidity pumped into the U.S. financial system by the Federal Reserve are not inflationary "at the moment" but will become so at some point, Paul Volcker, the former Fed chairman and a White House adviser, said on Thursday.

Volcker, now an economic adviser to President Barack Obama, said it was difficult, but necessary, to start draining the billions of dollars in liquidity even while unemployment rates remained high as the U.S. battles out of recession.

"You have to act against what seems like common sense. If you wait, it's too late," Volcker said while answering questions after a speech on financial markets at Harvard University's Kennedy School of Government.

Hey, Paul no worries. According to the last FOMC minutes, the Fed has actually made it a top priority to figure out how to actually drain the reserves. No kidding. About those minutes, I wrote:
In the middle of a crisis, for the Fed to state it is "completing development of these tools" as a "top priority" has to be a scary thought.

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