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The Federal Reserve’s Exit Strategy and the Threat of Inflation

In: The Financial Crisis and Federal Reserve Policy

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  • Lloyd B. Thomas

Abstract

The National Bureau of Economic Research ultimately dated the end of the Great Recession at June 2009. Nevertheless, the nation’s unemployment rate stubbornly remained between 9 and 10 percent for at least the next 16 months, the highest rate in a quarter century. About 8 million fewer Americans held jobs in October 2010 than in December 2007. Despite the considerable slack remaining in the U.S. economy, economists debated whether the Fed was overdue in unwinding its policy of extraordinary stimulus. While some economists worried about deflation, others feared the stage was set for an era of high inflation. The unprecedented expansion of the Federal Reserve’s balance sheet during 2008–2010 had more than doubled the monetary base and multiplied bank reserves by a factor of 25. Excess reserves in the banks increased from less than $2 billion at the beginning of 2008 to more than $950 billion in October, 2010.

Suggested Citation

  • Lloyd B. Thomas, 2011. "The Federal Reserve’s Exit Strategy and the Threat of Inflation," Palgrave Macmillan Books, in: The Financial Crisis and Federal Reserve Policy, chapter 0, pages 175-191, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-11807-2_10
    DOI: 10.1057/9780230118072_10
    as

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