BEIJING, Feb. 27 (Xinhuanet) -- U.S. Federal Reserve Chairman Ben Bernanke will start his two-day congressional testimony in just over one hours time or at 10:00AM Eastern Standard Time in the U.S that’s 11:00PM Beijing time. All eyes and ears will be on Bernanke, and the TONE of his testimony over the Fed’s quantitative easing program, which is once again in question as the central bank takes on trillions of dollars of assets that could be a problem to unload once the time comes.

With a balance sheet now exceeding three trillion dollars, the Federal Reserve is sitting on the biggest monetary policy experiment in human history.

Daniel Hanson, Economics Researcher, American Enterprise Institute, said, "This is uncharted territory. The models developed largely by Ben Bernanke when he was a professor at Princeton have now been put into place in the real world through quantitative easing and the various programs that they Fed has put into place. And nobody really thought beyond them and thought for how you get from this experimental phase of monetary back into a more normal time and so that work is only now just beginning and it’s unclear what it will look like moving forward."

The Fed is still purchasing $85 billion a month of mortgage-backed and Treasury securities. The intention of such "quantitative easing" is to lower the cost of borrowing for consumers and businesses and encourage economic activity and job creation.

Economist Joseph Gagnon says it’s improved the investment climate as well.

Joseph Gagnon, Peterson Institute for Int’l Economics, said, "Frankly, if we didn’t have QE2 and QE3 we’d probably have even more weakness in the US would have had more weakness, so it would have been even worse. So it’s not clear at all that QE is making things worse, if anything better because it’s making prospects for growth in the US better, and that is actually good for investors in the US."

But now the Fed has asked its researchers to consider the impacts of gradually selling these assets. If they do so whilst maintaining their promises to keep interest rates low, they are likely to feel some real financial pain.

Daniel Hanson, Economics Researcher, American Enterprise Institute, said, "The Fed, which has been returning money to the US Treasury for the past several years, and has returned about $291 billion over the past four years is going to be in a position to take capital losses and still have to pay out interest to big banks which they have already been criticized for bailing out in the past."

And losing money, even if for apparently justifiable reasons, may become a political problem for the Federal Reserve. Bernanke will also need to defend the Fed against concerns about spurring future inflation and "bubble" behavior in areas like rising agricultural land prices.

Ben Bernanke must now try to persuade lawmakers of the wisdom of this grand experiment, even as the Fed begins to consider ways to mitigate the potential downsides.

(Source: CNTV.cn)