Congressional Scrutiny
Congressional scrutiny probably will continue through the Fed’s exit from its unprecedented monetary stimulus, according to Brookings’ Binder.
“Its unwinding of policies is going to go on for a while and continue to attract attention from Republicans who think they’re not going fast enough and Democrats who think they’re moving too fast,” Binder said.
Bernanke has said one reason the Fed’s balance sheet won’t prove inflationary is the central bank’s ability to pay interest on excess reserves; it can raise the rate to prevent prices from accelerating too quickly.
Traders and investors also are more focused on the central bank’s record balance sheet now than they’ve been before previous nominations, said Jeffrey Rosenberg, chief investment strategist for fixed income in New York at BlackRock Inc., which manages $1.2 trillion in fixed-income assets.
Fed Influence
“The difference is the degree to which financial markets are influenced by central-bank activity,” he said. The Fed is “in a much larger position determining a broader array of financial prices beyond just short-dated interest rates.”
The Fed is buying $45 billion a month of Treasury securities and $40 billion a month of mortgage-backed securities in an effort to bring down 7.4 percent joblessness. It has extended more than $1 trillion worth of credit to the housing industry.
Policy makers are debating whether the economy is strong enough to warrant scaling back stimulus. While unemployment has fallen from a peak of 10 percent in October 2009, it is still above the 5 percent rate when the recession began.
One positive byproduct of all the attention the Fed has garnered is its increased transparency, according to Meltzer. Congress and the courts forced unprecedented disclosures of the Fed’s emergency loans after the crisis. Bloomberg LP, the parent of Bloomberg News, sued the Fed to force the release of details related to the lending.