With most economists taking a cautiously optimistic view of the economy's chances for stabilization, policymakers and market observers this week pondered how and when, exactly, the government will retire certain programs meant to support the financial system.
Treasury Secretary Timothy Geithner told the Congressional Oversight Panel Thursday that ‘we are now in a position to evolve our strategy as we move from crisis response to recovery.’ An additional $750 billion in stabilization funds, envisioned earlier this year as a possible necessity, has been removed from budget projects, he said. He maintained his position, however, that the Treasury is reluctant to act too quickly on some fronts.
"The classic mistake people make is they declare victory too soon, they put on the brakes too early, they withdraw these things too early," Geithner said.
Addressing the Public-Private Investment Program (PPIP), Geithner said increased pricing of non-agency mortgage-backed securities in recent months will cause the program to "proceed at a smaller scale than initially proposed."
In its monthly commentary, Annaly Capital Management cited PPIP's unproven nature and delayed rollout, adding, "A successful PPIP could justify winding down [the Term Asset-Backed Securities Loan Facility (TALF)], but TALF still provides support to a wide range of securities."
Atlanta Fed President Dennis P. Lockhart, speaking before the World Affairs Council of Jacksonville in Florida Thursday, said the looming commercial real estate problem remains a top concern. He also projected a slow recovery over the medium term, which is unlike past instances, where deep recessions were followed by sharp rebounds in economic activity.
Kansas City Fed President Tom Hoening, meanwhile, focused his speech to Kansas City manufacturers on the need to begin removing accommodative policy sooner rather than later. Moving too slowly heightens the risk for inflation.
‘We need to step up to hard choices now while we still have choices," he said, according to a Kansas City Star report.