From MNI news...
-------------------------------------------------------------------------------------------------
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.
-------------------------------------------------------------------------------------------------
and here..........
-------------------------------------------------------------------------------------------------
WASHINGTON (MNI) - The Federal Reserve's aggressive efforts to
tackle the high unemployment rate is increasing the risks to the U.S.
economy as opposed to mitigating them, Philadelphia Federal Reserve
President Charles Plosser said Tuesday.
Given that the Fed has gone all-in with an open-ended asset purchase program, the central bank must now proceed "with great care," Plosser told reporters after a speech to the CFA Society and the Bond Club of Philadelphia.
The Fed's actions over the years to support the recovery have become increasingly accommodative, he noted.
However, "I believe at the same time that in our efforts to become increasingly accommodative we are obtaining more risks on the other side at some point," Plosser added.
He said while those risks may or may not emerge, it is important that the Fed understands them and that going forward it takes steps to mitigate those risks -- if at all possible.
"But right now we are not mitigating any risks, we are just increasing them by expanding our balance sheet," Plosser said.
"It's not entirely clear to me that everything is going to work out just as nicely as we would like," he added.
The Fed's maturity extension program, also known as 'Operation Twist', is set to expire in December, at which point the Fed officials say the decision will be made if economic conditions warrant further purchases of government debt.
"I think we have to be cautious in understanding the risks we are taking and then weigh that against what we think the benefits of what further action are," Plosser said.
With regards to employment, he said evidence suggests that the impact of QE3 is likely to be "small at best," but with a lot of risks.
The Fed's recent actions, he said, are unlikely to encourage more investing and hiring by businesses, arguing that firms are "sitting on their hands" because of the uncertainty around the looming fiscal cliff in the United States and the still-unresolved Eurozone crisis.
"Monetary policy can't get those people to get off their hands right now," he argued.
Responding to a question from MNI, Plosser said monetary policymakers must first answer the question of whether the high unemployment rate is the result of cyclical or structural factors, and then craft an appropriate policy response.
Plosser argued against the Fed targeting a specific level of unemployment, arguing that there are many factors influencing the labor market that are outside the Fed's control.
"It's very difficult to stand and say there is a particular unemployment rate that we are seeking to achieve because we may get that number wrong," he warned.
The Fed's policymaking Federal Open Market Committee following its meeting on September 13 said it expects economic conditions will require rates to remain at historically low levels until mid-2015.
However, Plosser said he believes the Fed will have to tighten monetary policy "earlier rather than later," although the timing will be contingent on economic conditions.
------------------------------------------------------------------------------------------------------
The ramifications and reactions to the downsizing of the Fed's balance sheet would be enormous while the add on affects would be unpredictable.
-------------------------------------------------------------------------------------------------
Fed's Plosser: Concerned Might Have Reached Limits Of Mon Pol
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.
-------------------------------------------------------------------------------------------------
and here..........
-------------------------------------------------------------------------------------------------
Plosser/Media Q&A: Fed Raising Risks With Additl Accommodation
Given that the Fed has gone all-in with an open-ended asset purchase program, the central bank must now proceed "with great care," Plosser told reporters after a speech to the CFA Society and the Bond Club of Philadelphia.
The Fed's actions over the years to support the recovery have become increasingly accommodative, he noted.
However, "I believe at the same time that in our efforts to become increasingly accommodative we are obtaining more risks on the other side at some point," Plosser added.
He said while those risks may or may not emerge, it is important that the Fed understands them and that going forward it takes steps to mitigate those risks -- if at all possible.
"But right now we are not mitigating any risks, we are just increasing them by expanding our balance sheet," Plosser said.
"It's not entirely clear to me that everything is going to work out just as nicely as we would like," he added.
The Fed's maturity extension program, also known as 'Operation Twist', is set to expire in December, at which point the Fed officials say the decision will be made if economic conditions warrant further purchases of government debt.
"I think we have to be cautious in understanding the risks we are taking and then weigh that against what we think the benefits of what further action are," Plosser said.
With regards to employment, he said evidence suggests that the impact of QE3 is likely to be "small at best," but with a lot of risks.
The Fed's recent actions, he said, are unlikely to encourage more investing and hiring by businesses, arguing that firms are "sitting on their hands" because of the uncertainty around the looming fiscal cliff in the United States and the still-unresolved Eurozone crisis.
"Monetary policy can't get those people to get off their hands right now," he argued.
Responding to a question from MNI, Plosser said monetary policymakers must first answer the question of whether the high unemployment rate is the result of cyclical or structural factors, and then craft an appropriate policy response.
Plosser argued against the Fed targeting a specific level of unemployment, arguing that there are many factors influencing the labor market that are outside the Fed's control.
"It's very difficult to stand and say there is a particular unemployment rate that we are seeking to achieve because we may get that number wrong," he warned.
The Fed's policymaking Federal Open Market Committee following its meeting on September 13 said it expects economic conditions will require rates to remain at historically low levels until mid-2015.
However, Plosser said he believes the Fed will have to tighten monetary policy "earlier rather than later," although the timing will be contingent on economic conditions.
------------------------------------------------------------------------------------------------------
The ramifications and reactions to the downsizing of the Fed's balance sheet would be enormous while the add on affects would be unpredictable.
No comments:
Post a Comment