Tags: federal reserve | plosser | inflation | rates

Plosser: Fed Can Use Excess Reserves to Achieve Inflation

Wednesday, 14 Jan 2015 02:08 PM

Federal Reserve Bank of Philadelphia President Charles Plosser says he isn’t worried about low inflation because the trillions of dollars the Fed has pumped into the banking system will eventually help it achieve its target of 2 percent.

The Fed paid for several rounds of massive bond purchases designed to stimulate the economy by crediting banks with about $2.5 trillion of reserves in excess of what they are required to hold against deposits, ballooning its own balance sheet to $4.5 trillion in the process.

“As the economy improves and the banks begin to lend those reserves out, that is going to create money and that is going to create inflation,” Plosser told reporters after a speech in Philadelphia. “The Fed will have the ability as the economy continues to recover to allow those reserves to flow out and achieve any level of inflation that we want to.”

Inflation in the price index of personal consumption expenditures, the Fed’s preferred measure, rose 1.2 percent in November from a year earlier, marking 31 straight months below the Fed’s 2 percent goal.

Fed officials last month said they would be patient in the timing of starting to raise interest rates that have been held near zero since December 2008.

In particular, they will look for evidence that gives them confidence in their forecasts for inflation to gradually rise back up toward target in judging the timing of rate liftoff.

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Federal Reserve Bank of Philadelphia President Charles Plosser says he isn't worried about low inflation because the trillions of dollars the Fed has pumped into the banking system will eventually help it achieve its target of 2 percent.
federal reserve, plosser, inflation, rates
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2015-08-14
Wednesday, 14 Jan 2015 02:08 PM
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