Fed’s Plosser Says Low-Rate Pledge Not Needed as Growth ReboundsJeff Kearns
Federal Reserve Bank of Philadelphia President Charles Plosser said he voted against this week’s policy statement because its low-rate pledge is no longer appropriate after the economy “improved significantly,” while inflation and unemployment have moved closer to objectives.
“Given the clear progress we have made toward achieving our long-term goals over the past year, and the progress and momentum that appears to be building in the economy and in the broader labor market, I no longer believe that the forward guidance language in the statement is appropriate or warranted,” Plosser said today in an e-mailed statement.
The policy-setting Federal Open Market Committee said in its July 30 statement that job-market indicators suggest there is “significant underutilization” of labor resources, supporting the case for keeping rates low for a “considerable time” after they end bond buying. Officials also said inflation has risen closer to their 2 percent target.
Plosser, a consistent critic of both the Fed’s asset purchase program and low rates, cast the lone dissenting vote this week. He objected specifically to keeping the “considerable time” pledge with the economy now “very close to achieving” what policy makers said at the end of last year they expected they would not see until 2015.
“The funds rate setting remains well behind what I consider to be appropriate given our goals,” Plosser said. He said his views on setting the main rate are informed by policy rules that depict the past behavior of monetary policy.
Policy makers this week continued to reduce large-scale asset purchases that have quadrupled the Fed’s balance sheet to a record $4.41 trillion. Officials tapered monthly bond buying to $25 billion in their sixth consecutive $10-billion cut, staying on pace to conclude the purchase program in October.
Plosser today said the FOMC’s language on the outlook for raising rates “is time dependent and does not reflect the considerable economic progress that has been made toward the committee’s goals.”
The Fed has held its target rate near zero since December 2008. The median estimate of policy makers released in June project a rise to 1.13 percent at the end of 2015 and 2.5 percent a year later. Fed funds futures at yesterday’s close showed investors expect the first rate rise in August 2015.
The jobless rate fell to an almost six-year low of 6.1 percent last month, a level Fed officials had projected it would reach by the end of this year. The Fed’s preferred inflation gauge, the personal consumption expenditure index, rose 1.8 percent in May from a year earlier.
Plosser, 65, has led the Philadelphia Fed since August 2006. He was previously dean of the graduate school of business administration at the University of Rochester in New York. His regional reserve bank’s district includes eastern Pennsylvania, southern New Jersey, and Delaware.