Fed’s Plosser Calls for Cuts to QE in Next Few Months

Philadelphia Federal Reserve President Charles Plosser said the Fed should begin scaling back its $85 billion in monthly bond purchases in the next “few months” barring a slump in the economy.

“Unless something really dire happens between now and then, I think beginning to taper sometime within the next few meetings would be perfectly consistent with my view and with my outlook for the economy,” Plosser said today in an interview with Bloomberg Television’s Susan Li in Hong Kong, referring to coming meetings by policy makers. A cut in the record stimulus should start “in just a few months’ time.”

Several Fed officials favored cutting back bond purchases this year and halting the record stimulus by year-end, according to minutes of the March 19-20 meeting of the Federal Open Market Committee released yesterday. The FOMC pledged after its meeting to press on with asset purchases until the labor market improves “substantially.”

“A few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year,” according to the minutes.

The FOMC last met before an April 5 government report showed the U.S. added 88,000 jobs in March, the slowest payroll growth in nine months.

Press On

Seven central bank officials voiced support last week for the FOMC pledge to press on with asset purchases. The officials, commenting in speeches and interviews, include five who hold a vote on the FOMC: Vice Chairman Janet Yellen, Governor Daniel Tarullo, Chicago Fed President Charles Evans, St. Louis’s James Bullard and Boston’s Eric Rosengren.

Plosser said that the jobs report didn’t change his view about the need to curtail bond buying.

“One month’s number is not enough for me to change my forecast,” Plosser said of the payrolls report. “We all get too hung up sometimes on just what the most recent number is, and I think it’s very dangerous to focus too much on one number.”

The unemployment rate fell to 7.6 percent, a four-year low, due to people leaving the labor force entirely. The labor force participation rate dropped to 63.3 percent, the lowest since 1979.

“If I saw several more months of very weak job reports, it would obviously give me pause, because my forecast would not be looking very good at that point,” Plosser, 64, said in the interview.

Tapering QE

Referring to any tapering of bond purchases, Plosser said, “we may want to reduce it some and let it run for a while and then reduce it some more. So there are many different strategies to pursue, but it’s important that we have that conversation, that we talk about those things.”

The FOMC is scheduled to gather in two-day meetings beginning on April 30, June 18 and July 30.

The Standard & Poor’s 500 Index rose 0.4 percent today to a record close of 1,593.37, while the yield on the benchmark 10-year Treasury note fell to 1.79 percent from 1.8 percent yesterday.

In a speech earlier today in Hong Kong, Plosser said he expects the economy to grow 3 percent this year and next and the jobless rate to decline to 6.5 percent by the end of 2014.

The prediction indicates Plosser is more optimistic than economists in a Bloomberg survey who forecast growth of 2 percent this year and 2.7 percent in 2014.

The Philadelphia Fed chief in 2011 dissented from two decisions to increase monetary stimulus. He said he also opposed the decision last year to begin a third round of asset purchases. Fed presidents rotate voting on monetary policy with Plosser scheduled to vote again next year.

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