Fed’s Fisher opening up a can of worms with his criticism of QE3:
- If rates rise, Fed will incur losses on its portfolio ‘I am worried what that will look like’
- He’s also worried about getting stuck in QE land, worried about ‘how we are going to get out’
In my opinion, some things just shouldn’t be said. First of all, the Fed would never be obligated to take a true loss. They’re bonds, they could just hold them to maturity.
Second, if the Fed was selling bonds it would mean that QE had worked and the economy was recovering.
Third, selling bonds to trim inflation would be a more refined instrument.
Fourth, it’s all government money anyway. No matter who holds the bonds, the Treasury is paying the interest.
When Fisher says something like that, the risk is that it gets picked up by the wrong channels and politicized, which is the last thing the Fed needs.
