Fed tests an exit strategy

From a report by the Financial Times, the Fed now seems to be testing how one of its exit strategies would work if implemented in the future. One can remember that one of the strategies that were laid out by Fed Chief Ben Bernanke in an op-ed in the WSJ back in July was the reverse repurchase agreements.  Through reverse repos, the Fed would sell Treasuries in the market and promise to buy them back at a later date.  In effect, that would reduce the amount of liquidity that is in the system – the current amount of which is a cause for worry for many.

Take note that this doesn’t mark the beginning of the Fed exiting from the liquidity programs via reverse repos.  Before it could fully implement, the FOMC would first have to weigh in on the matter and make decisions.

The story from the FT.

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