Everyone interested in the world economy should watch Bernanke‘s recent speech and the press conference:

FED 2

FED 2 (Photo credit: Wikipedia)

 (Switch to full screen, it works well). Here is the base URL which collects together all the materials about the Fed’s announcement. The `exit strategy principles’ are in the June 21-22, 2011 meeting. 

The announcement reinforces the sense that the US economy is healing. The US Fed is keen to have inflation of 2% and believes the NAIRU is around 6.5%. Hence, once they come into the range where unemployment has achieved a few strong improvements and is trending to get below 6.5%, while price stability has not been compromised in that inflation expectations are still at 2%, they will start unwinding the extreme expansionary stance of monetary policy that has been in place in recent years. All through, there is no fixed calendar about what the Fed will do when. There is a clear articulation of the decision rules that will be employed, about how future data releases will generate future policy. 

Why did the world see this badly? Continue reading

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