Tags: federal reserve | charles plosser | economy | stock market selloff

Fed's Plosser Urges Earlier Rate Hike, Says Market Plunge Won't Throw Economy 'Off the Tracks'

Thursday, 16 October 2014 04:19 PM

Philadelphia Fed President Charles Plosser said the stock market's recent sell-off was not yet significant enough to hurt the U.S. economy or to garner a response from the central bank.

The Fed should not overreact when the domestic economy looks stable, Plosser told reporters in Allentown, Pennsylvania.

"I don't think anything I've heard has suggested to me it's of a significance ... to throw the U.S. economy off the tracks," said Plosser, who has a vote on Fed policy. "It could, but at this point the numbers just aren't big enough to really get too excited."

Plosser acknowledged that a big sell-off could harm U.S. consumer demand, but added the strong job market would offset that. The Fed "would address it (depending on) how we thought it would affect inflation and employment," he said.

On Wall Street, the price of the 30-year U.S. bond dropped more than 1 point and stocks rebounded after Bullard's comments.

Meanwhile, the hawkish U.S. central banker said said the Fed must prepare investors for an earlier interest-rate rise than many now think.

Plosser said rates may begin to rise "sooner than previously anticipated" and called on the central bank to promptly adjust its formal policy guidance to acknowledge "significant progress" in both U.S. inflation and employment.

Plosser is among the minority of Fed officials who want to close the book on ultra easy monetary policy sooner than mid-2015, which is when most of his colleagues see a rate rise.

Fears of a global economic downturn and a volatile sell-off in stocks in recent days have, however, prompted investors to bet on a later tightening closer to the end of next year.

The Fed must "prepare the markets for the fact that interest rates may begin to increase sooner than previously anticipated," said Plosser, who dissented on the central bank's last two policy decisions, and who will step down on March 1.

"I'm not suggesting a rate increase now, but changing the forward guidance would at least afford us the flexibility to gradually raise rates beginning earlier than currently anticipated," he said, adding rates should rise in the "very near future."

The Fed has kept rates near zero since late 2008 and has bought trillions of dollars in bonds to spur recovery from recession. U.S. economic growth has been erratic but unemployment has fallen briskly to 5.9 percent last month.

Plosser repeated he expects about 3-percent GDP growth the rest of this year and next, before it settles to a trend around 2.4 percent.

Bets on the timing of a Fed interest rate rise have fallen back to October or December of 2015, from mid-2015 a few weeks ago, based on futures markets.

But Fed Vice Chair Stanley Fischer and New York Fed President William Dudley, among other core Fed decision-makers, have in recent days suggested mid-2015 was still reasonable timing for a tightening.

Speaking in Billings, Montana on Thursday, Minneapolis Fed President Narayana Kocherlakota repeated his view that a rate hike in 2015 would be inappropriate.

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Philadelphia Fed President Charles Plosser said the stock market's recent selloff was not yet significant enough to hurt the U.S. economy or to garner a response from the central bank.
federal reserve, charles plosser, economy, stock market selloff
Thursday, 16 October 2014 04:19 PM
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