Tags: federal reserve | charles plosser | janet yellen | six months

Fed's Plosser Worried About Risks of Stimulus Exit

Tuesday, 25 March 2014 09:45 AM

A top Federal Reserve official said on Tuesday that he worries about what will happen when the U.S. central bank exits its super-easy monetary policy now that it has built up a balance sheet of more than $4 trillion.

"I think our balance sheet is very large," Philadelphia Federal Reserve Bank President Charles Plosser told CNBC on Tuesday.

"I am worried about the exit and sort of what the unintended consequences may be."

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The Fed has more than quadrupled its balance sheet since 2008 through purchases of long-term securities aimed at pushing down borrowing costs and stimulating the economy.

Plosser said he has always argued the benefits of the asset purchases to the economy are meager and the risks are high.

"I worry a little bit that when we unwind from this, what are the consequences of readjustment," he said.

Meanwhile, he said that Federal Reserve Chair Janet Yellen did not make a "mistake" when she said that there may be around six months between the time the U.S. central bank ends its bond buying and starts to raise interest rates.

That time frame was already expected in the markets, Plosser told CNBC. "It's better to get away from talking about time frames," he said.

Still, he said, he was surprised the market reacted as much as it did. Stocks and bonds fell after her remark.

The Fed will not contemplate raising rates before it ends the bond-buying program, which will be probably be in October or November if the Fed's current plan stays on course, Plosser said.

Plosser also said he expects rates will be raised gradually, and that his personal expectation is that the Fed's target policy rate should be only at about 3 percent by the end of 2016.

"I think we want to get back to more systematic policy, more normal policy," Plosser told CNBC. "And frankly when we get back to something that looks like full employment and our inflation target, we ought to be pretty close to that."

But Fed should go slowly, he said, "so there's a gradual adjustment process to get us there. Primarily the desire is not to shock the markets too much."

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A top Federal Reserve official said on Tuesday that he worries about what will happen when the U.S. central bank exits its super-easy monetary policy now that it has built up a balance sheet of more than $4 trillion.
federal reserve,charles plosser,janet yellen,six months
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2014-45-25
Tuesday, 25 March 2014 09:45 AM
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