If Economy Gains, QE2 May Close Early, Plosser Says

If the economy continues to strengthen, the Fed's plan to buy $600 billion of longer-term Treasury securities may end early, Federal Reserve Bank of Philadelphia president and chief executive officer Charles Plosser said Wednesday.

"Should economic prospects continue to strengthen, I would not rule out changing the policy stance to bring QE2 to an early close," Plosser told the Rotary Club of Birmingham, Ala., according to prepared text of his speech released by the Fed.

"Thus, I will continue to look at the data and consider revising my forecast and preferred policy path as we gain more information on economic developments in the coming months. If the growth rates of employment and output begin to accelerate or if inflation or inflation expectations begin to rise, then it may be time to begin taking our foot off the accelerator."

Plosser said he "expressed some doubts that the benefits outweigh the costs of this policy," but backed it at the last Federal Open Markets Committee meeting "because it is generally a good practice for a central bank to do what it says it is going to do unless circumstances significantly change," in order to protect the institution's credibility.

"I think monetary policy faces some difficult choices in the not-too-distant future," he added. "In particular, there is no question that, at some point, we will need to begin to remove the extraordinary amount of accommodation we have provided."

Removing accommodation can be "tricky," he said, since "monetary policy operates with a lag."

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