WASHINGTON, DC-Federal Reserve Bank Chairman Ben Bernanke wasscheduled to testify before Congress House Financial Servicescommittee Wednesday on the Federal Reserve Bank’s exit strategy forits ultra low-interest rate policy as well as the other measures ithas put into place over the past 18 months. That hearing was canceleddue to weather with no immediate date set for a rescheduling.

However, advance notice of his testimony has been reported. That,along with earlier speeches by other Fed officials, give the industry aclue as to how the banking authority is going to proceed–which isslowly and cautiously, when it does begin to scale back; likely not for several months.

For starters, the Federal Reserve may not make rate hikes until 2012,according to comments made by James Bullard, president of the St.Louis Federal Reserve, to Fox Business News. “You could take back someof the quantitative easing, not in a really rapid way, but in a slowway as the economy improves–that might be a helpful way to proceedwhile you are waiting for the day to raise interest rates,” he said.

The real question will be how the Fed will begin to suck back themassive amounts of liquidity it has poured into the credit markets. Ithas said, despite a few hints to the contrary, that will end itspurchases of mortgage-backed securities and the TALF program thisMarch.

The immense amount of liquidity, though, will require more than justtraditional measures. The Wall Street Journal reports that the Fed istaking a series of innovative steps before it begins raising interest rates.

One is to encourage banks to tie up money at the Fed for a setperiod—preventing them from lending it—in what are called “termdeposits.” Another is to lock up funds, and thus constrain the supplyof credit in short-term lending markets, by borrowing against theFed’s large portfolio of securities holdings, in trades known as”reverse repos.” When the Fed borrows from the markets, it effectivelytakes money out of circulation and replaces it with securities fromits holdings.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.



Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2023 ALM Global, LLC. All Rights Reserved.