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Fed’s Plosser Says Lower Unemployment May Prompt QE’s End

Jan. 4 (Bloomberg) -- Federal Reserve Bank of Philadelphia President Charles Plosser predicted a drop in the U.S. jobless rate to 7 percent or lower by year-end, which he said could lead to a halt to the central bank’s asset-purchase program.

Policy makers will stop purchases “when they believe substantial improvement has been made in the labor market,” Plosser told reporters after a speech to economists meeting in San Diego. He said “I would think so” when asked whether the 6.8 percent to 7 percent unemployment rate he foresees by the end of 2013 would meet the test.

The Fed said last month 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 of the Federal Open Market Committee released yesterday.

“In the last two years unemployment has come down by almost 2 percentage points -- about 1 percentage point a year” and that could repeat this year, Plosser said. “I still believe we will get about 3 percent growth in 2013, give or take a little bit, and in 2014.”

Plosser, who has criticized the Fed for tying policy to specific dates, said he thought it was a mistake to focus on the minutes’ references to 2013.

Not Specific

“The statement about when we stop buying assets is contingent on substantial progress on employment,” he said. “There is now a discussion about when will we see that. Some people think we will see that sooner rather than later. But we haven’t been very specific. That is a qualitative judgment call the committee will probably make.”

“It is about when the committee judges the improvement in unemployment to be sufficient,” he said. “I have been very clear all along. I have had the view that the efficacy of asset purchases is not very high” and “there are risks associated with these policies that will occur down the road.”

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

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

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