Plosser: Price Instability Causes Financial Instability

Price instability, both inflation and deflation, is a “significant source of financial instability,” Federal Reserve Bank of Philadelphia president Charles Plosser told an audience yesterday.

Even changes in food and energy prices, known to be volatile, can make central bankers’ lives difficult because they can change inflation expectations and “undermine the credibility of central banks’ commitment to price stability,” he said.

Consistent, transparent, and predictable systematic monetary policies “promote price stability, ensure credibility, and anchor expectations,” Plosser said.

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