Tags: Plosser | Fed | credibility | tapering

Plosser: Delay in QE Tapering Undermined Fed's Credibility

Tuesday, 08 October 2013 01:03 PM

Federal Reserve Bank of Philadelphia President Charles Plosser, an opponent of additional stimulus, said the Fed’s decision last month not to taper its asset purchases undermined the central bank’s credibility.

“To delay tapering of our current asset purchase scheme without clear and significant departures from prior guidelines suggested the FOMC was changing the goalposts and deviating from June’s forward guidance,” Plosser said in a speech in Johnstown, Pennsylvania, referring to the policy-setting Federal Open Market Committee. He doesn’t vote on the panel this year.

“This undermines the credibility of the committee and reduces the effectiveness of forward guidance as a policy tool.”

The FOMC last month pressed on with bond purchases of $85 billion per month, awaiting further information that the economy will grow quickly enough to bring down 7.3 percent unemployment. Economists in a Bloomberg survey before the meeting predicted the Fed would cut the pace of monthly purchases to $80 billion.

The Fed’s decision to press on with stimulus “contributes to additional uncertainty regarding the future course of monetary policy” and may be interpreted as a sign of decreased confidence in the economic outlook, Plosser said.

“The decision not to begin tapering our asset purchases was also read in some quarters as a sign that the FOMC had become much less confident that growth would be sustained in the manner the Committee envisioned in June,” Plosser said. “Thus, we undermined our own credibility as well as the public’s confidence in the economy.”

‘Modest Reduction’

“These were not the messages that I wanted to send,” Plosser said in his remarks to the Greater Johnstown Cambria County Chamber of Commerce. “Thus, I disagreed with the decision not to go forward with a modest reduction in the pace of our asset purchases.”

The economy will probably grow around 2.5 percent this year, accelerating to 3 percent next year, he said. The unemployment rate should fall by the end of 2013 to around 7 percent, and decline to 6.25 percent by the end of next year, he said.

“Based on this outlook and the improvement in labor market conditions, I believe it would be appropriate for the Fed to begin to reduce the pace at which we are expanding our balance sheet and to bring the purchase program to a close,” he said.

“We missed an excellent opportunity to begin this tapering process in September.”

Plosser, 65, became president of the Philadelphia Fed in August 2006. Fed presidents rotate voting on monetary policy with Plosser voting next year.

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Federal Reserve Bank of Philadelphia President Charles Plosser, an opponent of additional stimulus, said the Fed's decision last month not to taper its asset purchases undermined the central bank's credibility.
Plosser,Fed,credibility,tapering
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2013-03-08
Tuesday, 08 October 2013 01:03 PM
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