Did the Federal Reserve chairman go too far when he said that the central bank plans to reduce its stimulus buying later this year? Or did he leave out some important details?
Why? Investors are concerned about how the economy will hold up when the Fed stops pumping in cash.
Recently, the Fed has been buying $85 billion in Treasuries and mortgage-backed securities each month. Bernanke said that the central bank plans to start reducing those purchases later this year, and eventually bring them to an end when the unemployment rate falls to around 7% -- a scenario that he believes is unlikely to occur until mid-2014.
"I don't want to go from Wild Turkey to 'cold turkey' overnight," he told the Financial Times.
Like Fisher, Kocherlakota is not a voting member of the Fed's policymaking committee this year, but he will rotate into such a role next year.
He supports the Fed's efforts to stimulate the economy but believes the central bank's recent communications "leave the public with large amounts of residual uncertainty" about how exactly the central bank will react to an improving economy over the next couple years.
In his view, the Fed should commit to keeping short-term rates "extraordinarily low" at least until the unemployment rate falls below 5.5%. That viewpoint contrasts with the Fed's current guideline, which aims to keep short-term rates low until the unemployment rate falls to around 6.5%.
One is worried about low inflation: St. Louis Fed President James Bullard doesn't like that Bernanke laid out mid-2014 as an approximate timeline for the end of QE. The Fed should base that decision purely on the economic data, "not calendar objectives," he said in a statement Friday.
Bullard is also concerned about low inflation. He is currently a voting member of the Fed's policymaking committee, and last week, he officially dissented against the Fed's decision. He wants the central bank to commit to "defend" its goal of 2% inflation over the long run.
Bullard has said that should inflation slow further, the Fed should stand ready to increase QE -- not taper it any time soon.
And the persistent dissenter remains: On the opposite side of the debate stands Kansas City Fed President Esther George, who, as a voting member, has dissented against every Fed decision this year and continued to do so last week.
She believes the Fed is providing too much stimulus, which over time could lead to "financial imbalances" and fuel a pick-up in inflation.
She has not issued any further remarks since last week, and is not scheduled to deliver a speech until July 16.
Upcoming Fed speeches: The rest of the week brings at least eight more appearances by Federal Reserve officials. Get ready for plenty more second-guessing of Bernanke's road map toward the end of the Fed's stimulus. To top of page
Courtesy: CNN Money