For a lot of us free marketers, we’ve been looking to hear about an exit strategy. The government just can’t get involved, dumping all of this free cash into the market place and “stimulate” the economy. We all know that this has to come to an end. They have to stop doing what they’re doing. The real question is how they’re going to get out and what kind of damage will it cause. I’m also interested in hearing what will happen to the US dollar in the process.

July 13 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke probably will show how the central bank will exit the biggest monetary expansion in history when he reports to Congress next week, economists said.

The Fed pumped $1 trillion into the banking system over the past year through bond purchases and emergency loans, doubling assets on its balance sheet. Reassuring investors that inflation won’t exceed forecasts once the recession ends will give the Fed more credibility, said Dean Maki, chief U.S. economist at Barclays Capital Inc. While policy makers have spoken about specific tools they may use, they haven’t laid out a strategy.

“Now is the time to articulate the exit strategy,” said Vincent Reinhart, former monetary-affairs director at the Fed and now resident scholar at the American Enterprise Institute in Washington. “The Federal Reserve doesn’t speak with one voice and the testimony is an opportunity to present the consensus view.”

The Federal Open Market Committee will release updated economic forecasts on July 15. At their April meeting, officials anticipated inflation of between 1 percent and 1.6 percent in 2010, up from 0.6 percent to 0.9 percent this year. Their long- run forecast is for price increases of 1.7 percent to 2 percent.

Investor expectations for inflation have increased this year, as measured by the gap between yields on 10-year U.S. government notes and 10-year Treasury Inflation-Protected Securities. The spread widened to 1.52 percentage point at the end of last week from 0.09 percentage point in January.