Tags: Plosser | Fed | QE | taper

Philly Fed's Plosser: Not Tapering in September Is 'Missed Opportunity'

By Michelle Smith   |   Friday, 01 Nov 2013 11:47 AM

When the Federal Reserve didn't taper in September, it "clearly missed an opportunity" to signal that quantitative easing (QE) is a dial we can adjust and fine tune, Philadelphia Fed President Charles Plosser told CNBC.

After the September meeting, Fed Chairman Ben Bernanke reiterated that there is no "preset course."

"[T]he subsequent steps will be dependent on continued progress in the economy. So we are tied to the data," Bernanke said during the press conference.

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At that time, problems loomed in Washington. And Bernanke added, "A government shutdown, and perhaps even more so a failure to raise the debt limit, could have very serious consequences for the financial markets and for the economy."

Plosser believes it's a bad idea to allow the chaos in Congress to dictate monetary policy. And he also suggests the Fed may be too shortsighted.

There weren't any real changes in the economy from June to September, he told CNBC.

"I tend to look at longer term outlooks. I think the Fed can do very little about the near term," he noted.

"So I think it's important to keep our focus on the intermediate to longer term. And if you look at our forecast, our forecast for 2014, 2015 really hasn't changed very much."

By failing to taper in September it "sort of signals that maybe using our thinking of QE3 as some kind of thing we can move around with some precision or fine tune may be a very difficult thing to do," he said.

"I have not been a particular fan of the QE," he proclaimed. "I don't think it's terribly effective. And I've said that way back when we did QE2."

Plosser admits the first round of stimulus was "a completely different story" considering the "motivation and the rationale." But he is concerned about the consequences of the ongoing efforts and the Fed's exit strategy.

We must remember that QE3 is already 50 percent bigger than QE2, in terms of how it increases the balance sheet, Plosser noted.

Wednesday, the Fed concluded another meeting, in which it again decided to maintain its policy of providing stimulus at a pace of $85 billion per month.

The nation's central bankers "decided to await more evidence that [economic] progress will be sustained before adjusting the pace of its purchases," repeating language it used in September.

The Fed is trying to stick to this idea of making decisions based on economic data, "but that's been hard to do with QE," Plosser noted.

At some point, the program has to end and the Fed needs to consider how to exit in a sensible way, he told CNBC.

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