By Brai Odion-Esene
PHILADELPHIA (MNI) – Philadelphia Federal Reserve Bank President
Charles Plosser Tuesday voiced his fear that in its strong push to
support the economic recovery, the central bank’s policies might have
passed the point at which they continue to be effective.
Taking questions from the audience after a speech, Plosser argued
that over the years, expectations of what monetary policy can do have
built up “beyond what we are capable of delivering on.”
He warned that if the Fed is setting itself up for a big fall if it
keeps feeding into those expectations.
The central bank needs to display more humility, he said, and make
it clear to Americans that there are limits to what monetary policy can
do.
“I’m very concerned that we are reaching those limits — if not
already there,” he said. “Some humility about acknowledging that
actually could benefit the economy over the longer term.”
Plosser said the Fed’s quantitative easing measures have been
successful in battling deflation, but subsequent programs have not been
as effective in terms of impact on the real economy, with the impact of
the asset purchases on employment and output growth not clear.
The results have been “less than spectacular,” so far, he said,
adding the efforts being pursued by the central banking will have a
“minimal” impact.
On the other hand, Plosser again warned that the risks from the
Fed’s aggressive actions to boost the recovery could be quite
“substantial,” and voiced his concern.
The Fed’s plan to buy $40 billion in mortgage-backed securities a
month, in addition to its maturity extension program or ‘Operation
Twist,’ have complicated the exit strategy.
Also the Fed’s goal will be to shrink its balance sheet gradually
when the time comes, and the central bank must be aware of the
consequences, he said.
** MNI **
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