Tags: Hensarling | Fed | easing | Yellen

Rep. Hensarling: 'This Isn't Your Father's Fed'

Tuesday, 11 Feb 2014 10:43 AM

By Dan Weil

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House Financial Services Committee Chairman Jeb Hensarling, R-Texas, offered pointed criticism of the Federal Reserve's easing program ahead of new Fed Chair Janet Yellen's testimony to his committee Tuesday.

"This isn't your father's Fed," he told CNBC, questioning the appropriateness and effectiveness of the Fed's extraordinary easing measures.

In particular, Hensarling questions the Fed's forward guidance that it would probably keep short-term interest rates near zero "well past the time" that unemployment falls below 6.5 percent.

Editor’s Note:
These 38 Dates Are Key to Bagging $313,038

More than a year ago, the Fed set that level as a threshold where it would consider raising rates. But it added the "well past the time" language to its policy statement in December.

"Where's the Fed going with this forward guidance? Is it a rule? What good is forward guidance if when you reach a milepost you jettison it?" Hensarling asked.

"There are exceptions to every rule, but at some point you have no rule. You're making it up as you go along. And I think that breeds greater fear and uncertainty in the capital markets," he stated.

"We know that this unprecedented balance sheet is going to have to be unwound at some time," he asserted. "You're kind of on a tightrope here. On the one side is significant inflation. On the other side you can throw us back into recession.

"What is it that markets can count on? How will this balance sheet be unwound?" he asked.

To be sure, the Fed is expected to continue tapering its quantitative easing program under Yellen, with most economists expecting the program to end late this year.

"Our thinking is the Fed is committed to winding down purchases sooner rather than later," Tom Porcelli, chief U.S. economist of RBC Capital Markets, told USA Today.

Editor’s Note: These 38 Dates Are Key to Bagging $313,038

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