Jim Paulsen: Fed, Bernanke Must Get Out of ‘Crisis’ Mode

The Federal Reserve needs to back off a bit from its extreme policy easing, as the economy already is in recovery mode, says Jim Paulsen, chief investment strategist at Wells Capital Management.

The economy grew 3 percent in the fourth quarter. If the Fed doesn’t back off, it risks sparking inflation, Paulsen tells Yahoo.

"They need to get out of that crisis mindset, because I don’t believe this country is any longer in crisis,” he says.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

“That doesn’t mean we don’t have recovery problems. We do. You may legitimately say the economy still needs accommodative policy, but I don't think you can any longer argue it needs crisis policy."

And crisis policy is what we’re getting now, Paulsen says.

“Zero interest rates, quantitative easings, guaranteeing rates to stay low for multiple years, $1.5 trillion of excess bank reserves. These are things you only see in a crisis,” he says.

"I think they need to start to re-normalize monetary policy, start to realign it more with the maturation of this recovery. If they don’t do that, they risk creating the next new crisis, which is inflation.”

Paulsen may soon get his wish. In congressional testimony Wednesday, Fed Chairman Ben Bernanke sounded more optimistic to Ian Shepherdson of High Frequency Economics than he expected, The New York Times reports.

Bernanke’s “position has shifted a bit,” Shepherdson says. “This sounds like the start of the beginning of a process.”

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans