How the Fed can unwind
And its critics can relax

Federal Reserve/Flickr

Chairman Ben S. Bernanke speaks about creating resilient communities at the "Resilience and Rebuilding for Low-Income Communities: Research to Inform Policy and Practice" Federal Reserve System Community Affairs Research Conference in Washington, D.C., held on April 11-12, 2013.

Article Highlights

  • How will the Fed “unwind” its balance sheet — that is, sell off the bonds it has purchased — without harming the economy?

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  • How the Fed can unwind, and its critics can relax. @RameshPonnuru

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As the Federal Reserve has continued to buy bonds to aid the economic recovery, critics of its actions, and even some supporters, have grown increasingly concerned about what comes after all of this “quantitative easing”: How will the Fed “unwind” its balance sheet — that is, sell off the bonds it has purchased — without harming the economy?

The short answer: Don’t worry about it. The Fed can reverse its actions without wreaking economic damage, especially if it does it at the same time as it announces that it intends to keep nominal income growing at a stable rate.

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