Fed Taps Brakes with Bond Dump, Igniting Market Turmoil

The Federal Reserve's plan to combat inflation is not what Wall Street expects. Chairman Kevin Warsh has signaled that he plans to directly drain liquidity from the economy by dumping bonds, rather than relying solely on interest rate hikes.

This approach will inevitably rattle institutional investors and speculative traders who have grown accustomed to cheap cash. However, economist Dr. Matt Will argues that this trade-off is essential to reigning in runaway consumer prices.

The Fed's balance sheet has accumulated trillions of dollars' worth of bonds and mortgages over years of government bailouts and reckless deficit spending. Warsh's strategy involves shrinking the asset portfolio by dumping mortgage-backed securities and bonds, which will pull printed money out of the economy.