Plosser Says Fed Is Weighing Costs, Benefits of Easing

Federal Reserve Bank of Philadelphia President Charles Plosser said the policy-setting Federal Open Market Committee is considering the costs and benefits of additional easing as it pursues its open-ended asset-purchase program.

We “made it very clear we will review that on a regular basis,” Plosser said in response to questions from reporters after a speech today in Rochester, New York. Policy makers are “weighing the costs versus the benefits of continuing to expand our balance sheet” and will “make the decisions on a continuous or ongoing basis.”

Fed officials are discussing how long they will continue purchasing mortgage bonds and Treasuries as part of efforts to fuel economic expansion and bring down a 7.8 percent unemployment rate. The Fed last month linked its interest-rate outlook to economic thresholds, saying borrowing costs will stay low “at least as long” as joblessness exceeds 6.5 percent and if inflation is projected to be no more than 2.5 percent one or two years in the future.

“I’m not anxious to tighten right now but I do believe we need to sit back and weigh” possibly stopping additional stimulus, Plosser said. He said he’s “not terribly comfortable with” the latest bond buying and “not sure” what impact it’s having on achieving the Fed’s dual mandate of full employment.

U.S. Treasuries rose for a third straight day, pushing yields to near their lowest of the year, amid concern about raising the debt ceiling. Yields on 10-year notes declined two basis points to 1.82 percent as of 2:25 p.m. in New York. The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,470.56 after slipping as much as 0.5 percent earlier.

Plosser, who doesn’t vote on monetary policy this year, also said in his speech that he sees medium-to-longer-term inflation risks “given the current stance and anticipated path of monetary policy.” The speech was similar to remarks given in Somerset, New Jersey, on Jan. 11.

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