The FED's Conundrum

Ben Bernanke and the Fed face some tough choices in the coming weeks. With the termination of their purchase of mortgage backed securites due to occur on March 31, what will the Fed do with these assets? Bernanke has indicated that the Fed will slowly release them but only after the expected re-tightening of credit has begun via other methods. Nonetheless, the Fed faces a conundrum. If they hold these securities too long, they face the possibility of flaming the fires of inflation and also contributing to the givernment's deficit. If they sell these securities too early or too quickly it will drive up interest rates and mortgage rates. If they try to finance these sales they run the risk of depleting capital that could be used by private companies for growing their businesses and the economy in genral. It's a tough balancing act. If Bernanke manages this tightrope successfully, he will have earned his place in history.