Fed’s Plosser Says Stimulus May Backfire, Fuel Inflation

Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank’s record stimulus risks a surge in inflation and may impair efforts by households to repair their finances.

“Attempts to increase economic ‘stimulus’ may not help speed up the process and may actually prolong it,” Plosser said in the text of a speech today in Somerset, New Jersey.

Policy makers are discussing how long they will keep buying mortgage bonds and Treasuries as part of efforts to boost growth and bring down a 7.8 percent unemployment rate. The Fed last month linked its interest-rate outlook to economic thresholds, saying borrowing costs will stay low “at least as long” as joblessness exceeds 6.5 percent and if projected inflation won’t go beyond 2.5 percent one or two years in the future.

“Efforts to drive real rates more negative or promises to keep rates low for a long time may have frustrated households’ efforts to rebuild their balance sheets without stimulating aggregate demand or consumption,” said Plosser, who doesn’t vote on monetary policy this year. He has repeatedly criticized Fed easing for risking higher inflation and jeopardizing the central bank’s credibility, and said the latest stimulus steps do little to boost growth.

Low interest rates reduce returns for savers and do little to encourage businesses to expand payrolls or invest in new ventures, Plosser said.

Read more here: http://www.bloomberg.com/news/2013-01-11/fed-s-plosser-says-stimulus-may-backfire-fuel-inflation.html

1 Comment on Fed’s Plosser Says Stimulus May Backfire, Fuel Inflation

  1. This guy is the ONLY good Fed pres out there. I hope he has another job in mind for when they can him. No way this guy can last speaking such common sense!

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