Tags: plosser | inflation | warning

Fed's Plosser Worried About Inflation

Tuesday, 24 Jun 2008 04:46 PM

The president of the Federal Reserve Bank of Philadelphia, Charles Plosser, says that the Fed's ''accommodative policy" on interest rates could jack up already rising inflation.

Plosser sits on the rate-setting Federal Open Market Committee (FOMC). He says the economy is slowing but real interest rates are also coming down, and, therefore, the economy is restoring itself to equilibrium.

There may be changes later this year in federal policy to deal with the new reality.

"Rates are very low by most standards," said Plosser in a recent interview with CNBC.

"One would think of in terms of being accommodative, it is certainly clear that rates will have to rise. The question is, what is the state of the economy and when will that have to take place?

Plosser said that economic news is now much more encouraging, in general, than it was just six weeks ago.

"Broadly speaking, we're going to see some more ups and downs and bumps along the way. But I am encouraged," he said. "But inflation is still a legitimate concern."

The FOMC has been concerned about inflation since August. "And the data are increasing the concern," said Plosser. "The data is driving this."

Some FOMC members are concerned that if the economy remains weak and the dollar is weak, there could be inflationary pressures later this year or early next year, Plosser said.

"We're already facing inflationary pressures," said Plosser. "The question is the breadth. Monetary policy cannot control the price of oil. It cannot control the price of food. It works with a long lag."

"We need to look at prospects for inflation late this year and next year. We must take actions to mitigate those pressures so we don't turn these shocks of oil, etc. into inflation."

Plosser thinks, too, that the federal tax rebate checks are having a "modest impact" on the U.S. economy.

Some reports in the media have indicated that consumers in Texas and Louisiana, are, for example, using their rebate money for spending on entertainment, like quick vacations or visits to local casinos.

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The president of the Federal Reserve Bank of Philadelphia, Charles Plosser, says that the Fed's ''accommodative policy" on interest rates could jack up already rising inflation. Plosser sits on the rate-setting Federal Open Market Committee (FOMC). He says the economy is...
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2008-46-24
Tuesday, 24 Jun 2008 04:46 PM
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