The U.S. Treasury is scheduled to stop stimulating the economy in June, 2011 through the purchase of U.S. Treasuries. They will have completed a record stimulation by purchasing $600 billion by that point. What will happen if this stimulus suddenly stops?
Some think the stock market might drop after being “artificially” supported by the Treasury. Others think that the support should stop to avoid undue inflation. Certainly, we have seen significant inflation in commodities in recent months. Federal Reserve Bank of Atlanta President, Dennis Lockhart said the central bank should take its time in withdrawing economic stimulus. He thinks that the moderate economic growth we have been experiencing, as well as the recent inflation, will probably be temporary. In a speech he gave on April 8th, 2011, Lockhart said, “I think the process of restoration of full economic strength with higher employment continues to require support.”
When do we take the foot off the gas? There isn’t agreement, apparently, even among the most educated policy makers. Lockhart noted that manufacturing has made a good rebound, while the labor market is “improving gradually.” Overall, he sounded pretty optimistic that the economy would generally, but gradually, experience a “moderate pace of expansion.”