Fed’s Plosser Sees 3% Growth in 2014 as Job Market Gains

Federal Reserve Bank of Philadelphia President Charles Plosser, who favors winding down the Fed’s stimulus policies, said economic growth will probably quicken next year on a strengthening job market.

“Clearly this morning’s job numbers were on the positive side,” Plosser said today to reporters in Philadelphia, referring to a government report that unemployment fell in November to a five-year-low of 7 percent.

“What we’ve seen over the last several months is pretty broad-based increases in employment,” and “that’s a good sign for the economy going forward.” He forecast growth of 3 percent next year and 2.7 percent in 2015.

U.S. payrolls grew by 203,000 last month, exceeding the median estimate of 89 economists in a Bloomberg survey that called for gains of 185,000. Plosser reiterated his view that the Fed should announce a plan to halt $85 billion in monthly bond purchases.

“The sooner we can end this thing the better,” he said.

Fed officials signaled they may taper their bond buying “in coming months” if the economy improves as anticipated, according to the minutes of the Federal Open Market Committee’s Oct. 29-30 meeting. Policy makers next meet Dec. 17-18 in Washington. Plosser, who isn’t a voting member of the FOMC this year, will be able to vote on the panel in 2014.

Market Volatility

Fed officials are responsible for some market volatility due to “uncertainty that we’ve created” over the timing for a reduction in the third round of bond purchases, Plosser said.

“It might be better and simpler if we just said here’s how much we’re going to buy,” Plosser said. After announcing the final amount of purchases the Fed would “then stop and reevaluate.”

Plosser said he doesn’t favor reducing the interest rate on excess reserves that the Fed pays to banks on their holdings. The rate is currently set at 0.25 percent.

“I’m not sure how much we can cut them, whether that would really accomplish very much in the current environment,” Plosser said. He said such a move might also “put at risk some of the money market plumbing.”

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