Friday, June 10

Will Central Bankers Have the Same Courage On the Way Out?

Exit interview here with outgoing Fed Governor Kevin Warsh, who openly discusses his skepticism of QE2, how inflation is the cruelest tax of all, and other topics.

On the Fed's long talked about but still distant plan to 'exit', or unwind, its unprecedented monetary stimulus, he states "Central bankers must have the same courage on the way out that they had going in".

But just how likely is that? Given the current unemployment situation, and the Fed's dual mandate of stable prices and low unemployment, the Fed seems destined to remain in neutral or biased towards putting it's foot back on the money printing pedal.

The Fed has now surpassed China as the largest holder of government debt and has made it abundantly clear that its weak U.S. dollar policy, hashed in the interest of kickstarting exports, is not really open to negotiation.

Bottom line: don't expect the Fed to have the same courage when (or if) it belatedly decides to exit its massive monetary stimulus.

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