Fed’s Plosser Says U.S. Growth May Be Permanently Reduced

Federal Reserve Bank of Philadelphia President Charles Plosser said the last recession was a shock that seems to have permanently reduced the potential long-term growth of U.S. gross domestic product.

“It certainly looks like we have had a permanent shock,” Plosser said to economists meeting in San Diego. “The problem is we won’t know the answer for that for many years to come.” A permanent shock could result in a lower growth trend over time, he said.

Fed officials project long-term growth for the U.S. economy of 2.3 percent to 2.5 percent annually, according to forecasts made last December. That is less than the 2.5 percent to 2.8 percent annual growth they projected two years earlier.

Plosser didn’t comment on the current economy or monetary policy at the American Economic Association’s annual meeting.

The Fed said in December it will buy $45 billion a month of Treasury securities starting in January, expanding its asset- purchase program to $85 billion monthly, and for the first time linked the outlook for its main interest rate to unemployment and inflation. The central bank may end bond purchases sometime in 2013, some policy makers said, according to minutes of the Dec. 11-12 meeting released yesterday.

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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