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View Dan Morillo's Comments
Positioning A Portfolio For Rising Rates
Thanks for the question Elle C. The New York Fed published a book, available online, on US Monetary policy. It includes in Chapter 2 a short history of monetary policy over the last century with special focus on the Great Depression, the two world wars and the inflation of the 1970s. It’s a good introduction to the key questions, including concerns about the 1970s scenario, that shape current monetary policy discussion. The link is here:
On the second topic, while extensive expansion of the Fed balance sheet does risk eventual large inflationary pressure, this does not appear to be a near-term concern as this balance sheet expansion has not led yet to excessive increases in credit or consumption demand in the real economy. The Fed would need to let its balance sheet expansion continue well beyond the time when supporting the currently weak economic recovery was needed for this to take place. While this is possible, the Fed is well aware of the risks, which is why I label this scenario as a “policy error” as it involves a serious misjudgement by the Fed on when and how to end its balance sheet expansion.
May 9, 2012. 07:29 PM
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