James Bullard is looking to let up on the gas. Via Bloomberg:

“If the economy is as strong as I think it is then I think it may be reasonable to send a signal to markets that we’re going to start withdrawing our stimulus, and I’d start by pulling up a little bit short on the QE2 program,” Bullard said. “We can’t be as accommodative as we are today for too long, we’ll create a lot of inflation if we do that.”

I agree that the fundamentals are looking good despite oil price increases and the turmoil from Japan.

However, I am skeptical about attempts to lay off the gas. The Fed often repeats its concern over maintaining credibility as an inflation fighter. Just as important is maintaining credibility as an unemployment fighter. A Fed that clearly sits on the sideline while unemployment remains high sends the signal to firms that future dips in demand will not be offset and thus they should be more  more contractionary during periods of uncertainty.

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