LONDON — Philadelphia Fed President Charles Plosser said Friday that the Federal Reserve should put a total target size on quantitative easing and so disentangle issues of exit from interest rate policy.
"We'd like our policies to be state-contingent but that's been hard to do with QE," Plosser said during an interview with CNBC television. "I'm actually leaning to believe that maybe that's a better way to get us out of this box of fine-tuning and the choice of taper ... putting a number on the size of the balance sheet or how big this program is going to be."
Plosser pointed out that the theory behind quantitative easing (QE) was that what mattered was the total increase in the size of the balance sheet.
"How is the QE program supposed to work — it's supposed to work about the size of the balance sheet and how much in assets we're going to buy and the portfolio balance that it creates," Plosser said. "The theory is it's the size of the balance sheet which is providing the accommodation."
The Fed's data-contingent approach thus far had proved tough to actually implement, he added: "We haven't been able to describe very accurately about how we're data dependent."
"My point is it would be worthwhile considering 'how do we get out of this box?'," he asked rhetorically. "How do we get out of this program in a sensible way without confusing it with our interest rate program and forward guidance?"
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