Yellen takes on Jamie Dimon's monetary policy warning

dimon yellen

Federal Reserve Chair Janet Yellen responded Wednesday to comments made this week by JPMorgan (NYSE:JPM) CEO Jamie Dimon on the risks of unwinding the Fed’s accommodative monetary policies. Yellen said she did not expect the kind of large-scale economic disruptions of the type suggested by Dimon.

"I expect, and certainly hope, that this will go smoothly and it will be a gradual and orderly process,” Yellen said.

Dimon, who serves on the board for the New York Fed, warned Tuesday that unwinding quantitative easing (QE) programs – both in the United States and in other countries around the world – could pose some substantial risks for the global economy.

"We've never have had QE like this before, we've never had unwinding like this before," he said during a conference in Paris Tuesday. "Obviously that should say something to you about the risk that might mean, because we've never lived with it before."

When asked pointedly about Dimon’s concerns by Rep. David Kustoff (R-Tenn.), Yellen referred to the planned process the Fed has for unwinding the assets as “gradual and predictable.”

“We’ve tried to be very methodical about informing the public and the markets about how we’re going to do this,” Yellen responded. “We’ve provided essentially complete information, we’ve not heard significant concerns or seen a significant market reaction. So, we’ve indicated we expect to begin this, if the economy stays on track, this year."

Yellen also implied the process will be flexible, allowing the Fed to adjust its policies should economic conditions necessitate alternative actions.

The Fed’s balance sheet currently clocks in at $4.5 trillion, consisting of $2.5 trillion in Treasurys and $1.7 trillion in mortgage-backed securities. Currently, the Fed purchases new bonds to replace the ones that come due. Once it starts to unwind those assets, the central bank will allow bonds to mature without replacing them.

The Federal Open Market Committee’s plan includes shedding as much as $6 billion worth of government bonds and $4 billion in mortgage-backed securities each month. The Fed would raise those amounts every quarter, eventually hitting a cap of $30 billion in Treasury and $20 billion in mortgage bonds per month.

Yellen said she expects the Fed’s balance sheet to shrink to normal levels around the year 2022.