In further Congressional testimony today, Fed chief Janet Yellen stated that its bond holdings (held under its QE program) would remain elevated for up to 8 years even after the Fed begins to raise interest rates.
What’s the point? The Fed is not only being very open and transparent about its strategy, but also is stressing heavily that it expects to maintain a very high degree of monetary accommodation for a very extended period. For the most part, this is positive for financial assets, but there are drawbacks: 1) monetary theory states that high money supply growth via easy Fed policy can stoke inflation; and 2) the Fed’s policy may reflect deeper concerns about the underlying strength of the economy. Both factors enter into the “balancing act” the Fed has been playing now for over five years to seek and deliver an appropriate level of policy accommodation. With respect to the highly unusual policy, we are in uncharted waters, which does create an element of risk.
Link: http://money.msn.com/business-news/article.aspx?feed=AP&date=20140508&id=17601855