Tags: Feds Plosser 600 Billion Bond Program May Backfire

Fed's Plosser: $600 Billion Bond Program May Backfire

Tuesday, 11 Jan 2011 09:26 AM

A member of the Federal Reserve's policymaking committee suggested Tuesday that the Fed may need to scale back its $600 billion Treasury bond-buying program if the economy grows more quickly than expected.

But Charles Plosser, who becomes a voting member this year, is unlikely to sway the other members, based on speeches and minutes from the Fed's last meeting.

Plosser, president of the Federal Reserve Bank of Philadelphia, worries that the Fed's program may soon "backfire on us" and spur inflation if "we don't begin to gradually reverse course."

Plosser has repeatedly spoken out against the bond-buying program. He has raised concerns that the risks — namely the potential for unleashing inflation — could outweigh any benefits to the economy. Plosser was not a voting member when the Fed adopted the program on Nov. 3, although he attended the meeting. Only five of the 12 regional presidents get a vote.

The regional bank president, who has been outspoken with his concerns about inflation, is likely to put pressure on Federal Reserve Chairman Ben Bernanke and his colleagues to shrink the program.

The Federal Reserve has left open the door to buying less government debt if the economy were to strengthen more than anticipated or buy less were if to weaken.

However, minutes of the Fed's December meeting said the central bank has a "fairly high threshold for making changes to the program."

Bernanke defended the bond-buying effort and offered no signals that any changes would be forthcoming, while testifying on Capitol Hill last week.

The Fed meets next on Jan. 25-26 and will review the program at that time.

In a speech delivered in Philadelphia, Plosser said that a "slow but sustainable economic recovery is under way." He predicted the economy would log annual growth in the range of 3 to 3.5 percent over the next two years.

That would mark an improvement from the projected 2.8 percent growth for 2010. But the pace won't be fast enough to make a noticeable dent in the nation's 9.4 percent unemployment rate, Plosser acknowledged.

Plosser said the Fed will probably have to start boosting interest rates, now at a record low near zero, before the unemployment rate has dropped to an "acceptable level." The Fed has held its key interest rates at a record low since December 2008 to help prop up the economy.

© Copyright 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

 
1Like our page
2Share
Headline
A member of the Federal Reserve's policymaking committee suggested Tuesday that the Fed may need to scale back its $600 billion Treasury bond-buying program if the economy grows more quickly than expected. But Charles Plosser, who becomes a voting member this year, is...
Feds Plosser 600 Billion Bond Program May Backfire
390
2011-26-11
Tuesday, 11 Jan 2011 09:26 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved