Looking for the Exit

By Isaac Cohen*

As the US economy gets stronger, with vigorous job creation in October and higher third quarter growth, the debate within the central bank intensifies on when to start dismantling existing stimulus measures. These measures consist of keeping interest rates close to zero and monthly purchases of $85 billion in Treasury and mortgage based securities.

Federal Reserve Chairman Ben Bernanke clarified the terms of the debate, in a speech judged valedictorian because his mandate concludes next January 31. He said, if labor market conditions continue to improve and inflation moves above the 2 percent objective, both will signal that the pace of securities purchases will decrease. He also emphasized that interest rates will remain close to zero, until unemployment remains above 6.5 percent. Additionally, Chairman Bernanke emphasized asset purchases and low interest rates are separate tools. He said the unemployment rate of 6.5 percent is not an automatic trigger it is a threshold, which will signal the start of the internal debate at the central bank on increasing interest rates.

As characterized by the President of the Federal Reserve Bank of St. Luis James Bullard, all decisions are data driven. For instance, next December 6, the Labor Department will release figures on job creation in November, which will influence the outcome of the next Federal Reserve meeting of December 17-18.

*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC Washington Office.


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