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The High Stakes Ahead For Tightening Monetary Policy

"Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding. We have spent considerable effort in developing the tools we will need to remove policy accommodation, and we are fully confident that at the appropriate time we will be able to do so effectively." - Federal Reserve Chairman Ben Bernanke before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C. (February 10, 2010)

In late January, Tim Worstall from Forbes wrote a piece titled "Should The Fed Raise Interest Rates Or Reverse QE First?" This question is losing some of its immediacy because the market has pushed out its expectations on timing and pace for rate hikes in the next two years.

Financial markets expect… Read More …