BackFed’s Charles Plosser sees high bar for change in pace of taper
Plosser says recent encouraging economic data isn't enough to change the pace of Fed's asset purchases
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Paris/London/Atlanta: Federal Reserve Bank of Philadelphia president Charles Plosser, who votes on policy this year, said recent encouraging economic data isn’t enough to change the pace of the central bank’s asset purchases.
“It would have been nice, from my perspective, had we started at a faster pace," Plosser said in a Bloomberg Television interview with Manus Cranny in Paris, referring to the Fed’s tapering of its stimulus programme. “Given the fact that we’ve embarked on measured reductions, it’s important to give some certainty or at least clarity to the markets on what we’re doing. It’s OK to continue at $10 billion. The hurdle rate for change is pretty high in either direction."
The Fed is trying to determine whether the economy has shown recent signs of weakness because of severe winter weather or fundamental obstacles to growth. The policy-setting Federal Open Market Committee (FOMC) meets 18-19 March in its first gathering led by chair Janet Yellen since she succeeded Ben S. Bernanke last month.
New York Fed president William C. Dudley said on 7 March he sees a “reasonably favorable" outlook for the economy, even as high unemployment and low inflation warrant stimulus for a “considerable time."
The US employers added more workers than projected in February, data last week showed, indicating the economy is starting to bounce back from a weather-induced setback. The 175,000 gain in employment followed a revised 129,000 increase the prior month that was bigger than initially estimated.
No Whip-Saw
Improvement in the labour market is one reason the FOMC has trimmed monthly bond purchases by $10 billion in each of its past two meetings. The central bank in January reduced monthly bond purchases to $65 billion.
Policy shouldn’t be “whip-sawed from month to month," Plosser said when asked about the jobs numbers. The numbers were “encouraging," though they follow other data in the previous two months that were “weak," he said.
Yellen has pledged to press on with gradual reductions in so-called quantitative easing so long as the economy continues to show signs of improvement.
The Fed has pledged to keep the main interest rate at zero well past the time unemployment falls below 6.5%. Labour department figures showed that joblessness rose to 6.7% in February from 6.6% the month before as more people entered the labour force and couldn’t find work.
Plosser, a former University of Rochester economist, became president of the Philadelphia Fed in August 2006. The bank’s district includes eastern Pennsylvania, southern New Jersey and Delaware. Bloomberg
Jennifer Ryan in London contributed to this story.
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