Bernanke’s last taper. The US Federal Reserve reduced its bond-buying stimulus by another $10 billion a month, as expected. But the era of Ben Bernanke, who steps down as Fed chairman on Friday, is far from over.
Which means the chief challenge for Bernanke’s successor, Janet Yellen—the current Fed vice chair—will be that giant balance sheet. The Fed itself estimates that the balance sheet won’t get back to approximately normal until sometime between 2019 and 2021. Some monetary policy geeks argue that this balance sheet—essentially the aftermath from a vast run of reserve-creation—risks setting off an inflationary spiral if not managed correctly. Others say the Fed has the tools it needs to prevent that from happening. (They also point out, correctly, that the inflation-phobes have been issuing such warnings since the financial crisis struck, none of which have come true.)