Plosser: No Need for More QE

Philly Fed chairman sees economy doing better without additional stimulus.

Philadelphia Federal Reserve Bank President Charles Plosser said he doesn’t currently see any need for additional monetary stimulus as the economy recovers.

“The economy’s doing better, we’re gaining some traction,” Plosser said in an interview with Bloomberg Television in Paris today. “We’re not entirely out of the woods. But I’ve got some cautious optimism. If the economy evolves as I think it will, barring some extraordinary events, I don’t think there’ll be any need for further accommodation or further QE.”

Plosser said on Feb. 29 that he believes the U.S. economy will improve this year and that the Fed, which has committed to keeping its key rate near zero through 2014, may need to raise borrowing costs “sooner than people expect.” Economic growth Under Chairman Ben S. Bernanke, the Fed has purchased $2.3 trillion of Treasuries and mortgage debt in two rounds of so- called quantitative easing, known as QE1 and QE2.Plosser, who doesn’t vote on the Federal Open Market Committee this year, said while those policies may have been appropriate at the time, they will need to be unwound. The timing of the Fed’s exit “remains to be seen,” he said.

“We can say it was what we had to do at the time and it was appropriate, but we have to recognize that it is straying into a territory that traditionally monetary policy has not been,” Plosser said. “It still may be the best policy, but it does have consequences that we need to be aware of.”

Asked if the Fed should keep accommodative policies in place to counter a withdrawal of fiscal stimulus at the end of the year, something Bernanke has called the “fiscal cliff,” Plosser said: “I don’t think it’s necessarily the right way for us to think about more accommodation just because of what the fiscal authorities are doing.”

Bloomnberg News
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