Another concern associated with additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations.
This progress will in turn facilitate market-based adjustment of current account position and ultimately contribute to balanced and sustainable growth. Exchange rate adjustment also affects capital account. Therefore, it is necessary to closely monitor capital flows, stand ready to conduct sterilization operations, and impose limits on external debts.