The Federal Reserve is engaged in expanding money supply. Every month, it buys $85B of Treasury debt and creates new money. Although it may not physically print money, it boosts accounts, all in an effort to keep the interest rate artificially low. There is a change in leadership afoot at the top spot of the Fed. X. No body has asked the question what the exit plan is from its QEs and how will it execute it without causing stagflation similar to or worse than it was in the early 1980s. Would someone lay out a path which shows a dire consequence-less scenario of Fed action to absorb all that excess money in trillions? The steps need to be recognizable without the usual mambo-jumbo.
I reckon that we are facing a tough time once the economy picks up slightly and the interest rates start heading north. Whoever the next president is, policies aimed at a strong economic recovery will immediately take a detour into high interest rates, high inflation and increased unemployment, essentially scuttling the economic recovery. The Fed. monetary policies of the last few years has essentially robbed the future from our grand kids. The presidential candidate who is pro-growth will have to set the stage for the immediate downturn.
Any increase in interest rate will immediately put pressure on the government budget in terms of debt service interest payments and higher costs of the entitlement. The economy can either go down or stay at the current malaise. It has a built-in trap when it tries to gather upward momentum. Please tell me why my analysis is wrong. If it is please explain in simple economic terms why the Fed could easily sop up the trillions that it had created.