Tags: Plosser | Opposes | Fed | Bond | Buying | Small | Deflation

Plosser Opposes More Fed Bond Buying, Sees Small Deflation Risk

Wednesday, 29 Sep 2010 03:02 PM

Federal Reserve Bank of Philadelphia President Charles Plosser said he opposes more monetary expansion by the U.S. central bank in part because he sees “little risk” of deflation.

“Because I see little gain at this point, and some costs, I would prefer not to engage in further asset purchases at this time,” Plosser said in remarks prepared for a speech to the Greater Vineland, New Jersey, Chamber of Commerce today. “Asset purchases in our current economic environment can do little if anything to speed up the return to full employment.”

U.S. central bankers are debating whether more monetary stimulus would help speed up a recovery that hasn’t pushed the jobless rate lower.

Consumer confidence slumped this month, and a rebound in home prices cooled. The Federal Open Market Committee said in its Sept. 21 statement that inflation measures are “somewhat below” levels consistent with the Fed’s mandate to achieve stable prices.

The unemployment rate has been stuck above 9 percent since the recession ended in June 2009 — almost twice the 5 percent rate when the slump began 18 months earlier. The personal consumption expenditures price index, minus food and energy, rose 1.4 percent for the 12 months ending July. That’s below Fed officials’ long-run preference range of 1.7 percent to 2 percent.

“We are in the midst of an economic recovery -- a modest one, but a recovery nonetheless,” said Plosser, 62, a former professor and business-school dean at the University of Rochester in New York, who joined the Philadelphia Fed as its chief in 2006. “It is difficult, in my view, to see how additional asset purchases by the Fed, even if they move interest rates on long-term bonds down by 10 or 20 basis points, will have much impact on the near-term outlook for employment.”

Confuse People

Plosser said the central bank might confuse people by leading them to believe that monetary policy could fine-tune the unemployment rate. He added that he sees no “significant risk of sustained deflation,” and said prices should increase to a 2 percent annual rate next year.

The Fed statement this month said officials were “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

The Fed kept its benchmark interest rate in a range of zero to 0.25 percent, where it has been since December 2008, and said borrowing costs were likely to remain low for “an extended period.”

The central bank decided at its previous meeting in August to set a $2.05 trillion floor on asset holdings, buying Treasuries to replace mortgage debt that borrowers were repaying. Bernanke said in an Aug. 27 speech that the move was aimed at keeping market interest rates low by avoiding shrinkage in the Fed’s balance sheet.

Economists including Michael Feroli at JPMorgan Chase & Co. in New York predict that the Fed will expand its balance sheet by the end of the year to support the recovery.

Plosser becomes a voting member of the FOMC next year.

© Copyright 2017 Bloomberg News. All rights reserved.

 
1Like our page
2Share
StreetTalk
Federal Reserve Bank of Philadelphia President Charles Plosser said he opposes more monetary expansion by the U.S. central bank in part because he sees little risk of deflation. Because I see little gain at this point, and some costs, I would prefer not to engage in...
Plosser,Opposes,Fed,Bond,Buying,Small,Deflation,Risk
507
2010-02-29
Wednesday, 29 Sep 2010 03:02 PM
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