Tags: Federal reserve | Plosser | growth | economy

Fed's Plosser Expects Economy to Grow at 3 Percent Pace for Rest of 2014

Friday, 30 May 2014 11:49 AM

Federal Reserve Bank of Philadelphia President Charles Plosser says “the weakness in the first quarter is something we’ve been anticipating for a long time,” adding that harsh winter weather had a “very large” impact on the economy.

“I’m still thinking for the rest of the year” 3 percent economic growth is a “pretty good” estimate, Plosser said in a CNBC interview. “There’s a possibility” unemployment “may be below 6 percent by the end of the year if things keep going the way they have.”

Plosser added, “It’s hard to imagine” the yield on the 10-year U.S. Treasury note “will continue to fall.”

Plosser votes this year on the Federal Open Market Committee.

Meanwhile, Plosser said he’s “encouraged” by a report showing faster gains in prices while calling for vigilance as inflation moves closer to the Fed’s 2 percent goal.

“The inflation rate is going to gradually lift up,” Plosser said in a Bloomberg Radio interview.

“How quickly? It may end up coming back quicker than some people think. We’ll just have to be careful and vigilant.”

The Commerce Department said the Fed’s preferred gauge of inflation, as measured by the personal consumption expenditures index, accelerated to 1.6 percent in April, marking the fastest pace since 2012. Fed officials have struggled to speed inflation toward their goal even with record-low interest rates and an expansion of their balance sheet to $4.32 trillion.

“I’m one of those people” who think “the rate hikes are going to come sooner than others” do, Plosser said in the interview. The timing of the interest-rate increase will depend on the evolution of the economy, he said.

Policy makers are debating the timing for increasing the benchmark interest rate, which they have held close to zero since December 2008, and how to eventually wind down the Fed’s record balance sheet.

“There are risks to maintaining a big balance sheet,” Plosser said. “My preference is to see the balance sheet gradually shrink.”

Prior Generations

Asked about recent signs of a slowdown in the housing market, Plosser said he sees some structural, longer-term changes in housing that may have changed how the industry should be viewed, noting that the preferences of younger home buyers may have changed compared with prior generations.

“We have to be careful to allow these adjustments to evolve,” he said. “Home prices are still rising.”

In a speech at the Hoover Institution in Stanford, California, Plosser reiterated his call for the Fed to adopt a “more systematic rule-like approach” to monetary policy. Such “robust rules” would help the central bank “enhance economic performance,” he said in a speech.

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Federal Reserve Bank of Philadelphia President Charles Plosser says "the weakness in the first quarter is something we've been anticipating for a long time," adding that harsh winter weather had a "very large" impact on the economy.
Federal reserve, Plosser, growth, economy
Friday, 30 May 2014 11:49 AM
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