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How much can the Federal Reserve keep buying, and to what extent can it expand its balance sheet? Moreover, what are the limits of monetary policy? At an AEI event on Thursday, financial experts joined AEI's Alex Pollock to discuss the pending challenges facing the next Fed chair. Peter Fisher of BlackRock Investment Institute highlighted that Federal Open Market Committee members do not agree on what forward guidance means. Consequently, he urged the Fed to clarify its theory of expectations.
AEI's John Makin argued that markets and policymakers have placed the Fed on an unrealistic pedestal, expecting it to do more than it can. He said that while the Fed's emergency actions during the financial crisis bolstered the economy, the Fed faces a difficult task in maintaining a low and stable rate of inflation while remembering that it cannot affect unemployment.
AEI's Stephen Oliner posed a dilemma: if the economy remains sluggish despite the Fed's optimistic forecast, how long will the Fed continue to expand its balance sheet and how will it extend forward guidance in the future? Conversely, what if the economy fares better than forecasted and the inflation rate increases? Oliner argued that Fed guidance should not rely excessively on fallible forecasts.
Live blog from the event
President Obama will soon nominate the next chair of the Federal Reserve Board of Governors, coming at a time when the Fed balance sheet has inflated to the unprecedented size of $3.6 trillion, including $1.3 trillion in mortgages. Since the financial crisis, the Fed has been following an aggressive "easy money" strategy, including buying $85 billion of bonds and mortgages each month and keeping real short-term interest rates negative. What’s next? Can the Fed stop now?
At this event, Fed policy experts will discuss the leadership challenges facing the next Fed chair, including continuing or ending quantitative easing, dealing with systemic risk, addressing the effects of the Fed’s actions on other countries, and meeting the Fed's statutory mandates for stable prices, employment, and moderate long-term interest rates.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.
Learn more about the 3 challenges awaiting the next Federal Reserve chair:
Registration and Buffet Lunch
Peter Fisher, BlackRock Investment Institute
John H. Makin, AEI
Stephen D. Oliner, AEI
Alex J. Pollock, AEI
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Peter Fisher is a senior director at the BlackRock Investment Institute and a senior fellow at the Center on Global Business and Government at the Tuck School of Business at Dartmouth College. From 2007 to 2013, Peter served as cohead and then head of BlackRock's Fixed Income Portfolio Management Group. From 2005 to 2007, he served as chairman of BlackRock Asia. Before joining BlackRock in 2004, he served from 2001 to 2003 as under secretary of the US Treasury for Domestic Finance. He worked at the Federal Reserve Bank of New York from 1985 to 2001, concluding his service as executive vice president and manager of the Federal Reserve System Open Market Account.
John H. Makin is a former consultant to the US Department of the Treasury, the Congressional Budget Office, and the International Monetary Fund. He specializes in international finance and financial markets (stock, bonds, and currencies including the euro and the US dollar). He also researches the US economy (including monetary policy and tax and budget issues), the Japanese economy, and European economies. He is the author of numerous books and articles on financial, monetary, and fiscal policy. Makin writes AEI's monthly Economic Outlook.
Stephen D. Oliner, an economist who joined AEI after a career at the Federal Reserve Board that spanned more than 25 years, held a number of high-level posi¬tions at the Fed, most recently serving as a senior adviser in the Division of Research and Statistics. He was actively involved in the Fed’s analysis of the US economy and financial markets, and his research spanned a wide range of topics, including monetary policy, business capital spending, productivity growth, commercial real estate and the measurement of capital. Concurrent to his position at AEI, Oliner is a senior fellow at the University of California, Los Angeles’s Ziman Center for Real Estate. He also maintains an economic consulting practice.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was formerly president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is also the author of numerous articles on financial systems and the organizer of the Living in the Post–Bubble World series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of CME Group, a director of Great Lakes Higher Education Corporation and the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.