By Dow Jones Business News,
January 14, 2014, 03:09:00 PM EDT
By Michael S. Derby
PHILADELPHIA--Federal Reserve Bank of Philadelphia President Charles Plosser said Tuesday that weak December U.S.
jobs data won't stop the central bank from pressing forward with plans to cut the pace of its bond-buying stimulus
There is a "high bar" to deviating from the current course of cutting the monthly pace, Mr. Plosser told reporters
after a speech in which he had welcomed the central bank's move to cut down the scope of its easy-money policies. Last
month, the Fed trimmed its bond-buying stimulus from $85 billion a month to $75 billion. Most expect further cuts will
come as the year proceeds.
That said, the apparent weakness of the December jobs data called into question the Fed's move to withdraw support
from the economy. In his speech, Mr. Plosser said, "I caution you not to read too much into one month's number."
The central banker said he believes there is no reason for the Fed not to press forward. "I believe the economy has
met the criteria of significant improvement in labor-market conditions for ending the program and that further increases
in the balance sheet are unlikely to provide appreciable benefits for recovery," he said in Philadelphia.
Mr. Plosser is one of the Fed's strongest advocates for winding down stimulus efforts. He says that with short-term
rates pegged near zero, an end to bond buying would still leave monetary policy in a very supportive position for the
economy. Mr. Plosser will be a voting member of the monetary policy setting Federal Open Market Committee this year.
Mr. Plosser told reporters he would like the Fed to signal a clearer commitment to cutting down its bond purchases
and believes the current open-ended nature of the program creates unwanted uncertainty for markets. He also said that
when it comes to the cuts, "I would have preferred it to be a little faster." But he declined to say how he would use
his vote at the FOMC gathering scheduled for this month, saying "I'd have to wait until I get to the meeting to see
what's on the table."
Mr. Plosser also told reporters he would prefer to leave in place the Fed's current guidance that suggests a
potential timing for future short-term rate increases. He noted that among Fed officials, "I don't' think anyone feels
any great rush" to raise rates.
In his speech, the official said he expects to see the economy improve "at a moderate pace," with U.S. gross
domestic product growing around 3% for the year. Mr. Plosser said he expects that very low levels of inflation that are
running below the central bank's 2% target--a goal he said should be defended from both the high and low side--will end
and prices will tick back up to where the Fed wants them to be.
Mr. Plosser said he also expects good things from the labor market this year. From the current 6.7% jobless rate,
he said he expects an improvement to 6.2% by year's end. The central banker pushed back at those who take a cautious
view of the decline in the unemployment rate, coming as it does during a time of declining labor force participation.
Mr. Plosser said the declines in participation have been happening for some time and owe a lot to retiring baby
boomers, as opposed to bad economic times that have forced workers out of the labor force. "I wouldn't overinterpret the
decline in participation as a lack of progress made in labor market conditions or as a problem that must be corrected,"
Mr. Plosser said. "There are fundamental changes in the structure of the labor market that are likely real and
Mr. Plosser again warned the Fed will face significant challenges when the time comes to tighten monetary policy.
He said he worries the Fed won't begin to tighten policy when the time is right and that could cause inflationary
problems, which in turn "may require raising interest rates more quickly than currently anticipated."
In response to a question from the audience, Mr. Plosser said that when the Fed tightens policy, it could face
paper losses on its effort to control liquidity. But he added, "It is pretty hard for the Federal Reserve that has the
monopoly right to print money to lose money."
Write to Michael S. Derby at firstname.lastname@example.org
(END) Dow Jones Newswires
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