COMMENT Ben Bernanke, chairman of the Federal Reserve, is expected to tell Congress this week how the Federal Reserve plans to exit from unconventional monetary policies. He would be right to do so. This is not because there is any need to reverse course now. Nor is it because policies create an imminent danger of inflation. It is because fear that the Fed may be unable to reverse course is stoking an unnecessary panic about inflation. That panic, in turn, risks making current policy less effective than it still needs to be.
The worriers point to the increase in the Federal Reserve’s balance sheet from $900bn last summer to a little over $2,000bn now and to the associated jump in the reserves held by banks at the Fed. This, they argue, will generate an explosive rise in lending and the money supply. Thereupon, they argue, the economy will take off into an inflationary explosion. If only. It would be wonderful if current policies were to generate a sharp rise in lending and spending. But that is, alas, highly unlikely.
