Fed looks ahead to an exit strategy

Steve Chiotakis Mar 25, 2010
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Fed looks ahead to an exit strategy

Steve Chiotakis Mar 25, 2010
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TEXT OF INTERVIEW

Steve Chiotakis: Federal Reserve Chairman Ben Bernanke heads to Capitol Hill this morning. He talks to lawmakers a lot, but this time instead of looking back at the financial crisis he’ll be looking forward — to an exit strategy. He’s going to be briefing lawmakers on how the Fed plans to end it’s policy of cheap and easy lending for banks. Marketplace’s Brett Neely is with us from our Washington studio this morning with the latest. Good morning Brett.

Brett Neely: Good morning, Steve.

Chiotakis: Why does the Fed even need an exit strategy?

Neely: Well, it’s important to remember what we’re exiting from. When credit markets started to freeze at the peak of the crisis, the Fed dumped an unprecedented amount of money into the financial system. Plus, interest rates had been effectively zero for more than a year that Bernanke says rates will rise as the economy recovers. If Bernanke and the Fed exit too fast, banks to stop lending again. Too slow, we could have high inflation or high unemployment.

Chiotakis: Now Bernanke’s approach, Brett, has gotten a lot of criticism from fellow economists and some of his critics are also testifying today. What are they going to say?

Neely: The critics are all over the place. One criticism of Bernanke’s exit strategy is that it’s too vague and needs clearer benchmarks for what the Fed’s going to do at different stages. Another argument that most Americans can relate to is that the Fed will prioritize inflation fighting over creating jobs So it could raise rates before the jobless rate falls more, and that would stop the job market recovery cold. Which is an exit strategy no one wants to see.

Chiotakis: Marketplace’s Brett Neely in Washington. Brett, thanks.

Neely: Thank you.

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