At a Central banker conference yesterday, Mr Bernanke gave a speech on monetary policy during a "low-inflation" environment. Basically meaning when the fed rate is zero and still fighting deflation. This is a really interesting speech and is posted on the FRB website: http://www.federalreserve.gov/newsevents/speech/bernanke20101015a.htm
Here is an excerpt relating to what we talked about last Thursday:
"Another concern associated with additional securities purchases is that substantial further expansion of the balance sheet could reduce public confidence in the Fed's ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations, to a level above the Committee's inflation objective. To address such concerns and to ensure that it can withdraw monetary accommodation smoothly at the appropriate time, the Federal Reserve has developed an array of new tools. With these tools in hand, I am confident that the FOMC will be able to tighten monetary conditions when warranted, even if the balance sheet remains considerably larger than normal at that time."
The next FOMC meeting is in about 3 weeks, meanwhile Mr Bernanke is preparing for a conference with the congress on the Fed's actions thus far. Should be interesting.