BOSTON — Philadelphia Federal Reserve Bank President Charles Plosser Thursday said he's never much liked the central bank's current asset purchase program and that the moment has arrived to start phasing it out.
"I think it's time that we begin to gradually unwind ourselves form this activity," Plosser told reporters following a speech at Boston College's Carroll School of Management. "I wish we hadn't started it, but given that we've started it, you've got to figure out a way to back yourself out of it."
Under the so-called "QE3" program, the Fed has been buying $85 billion a month of Treasury and mortgage securities to drive down interest rates and stimulate the long-suffering U.S. economy. The program gets its QE3 name because it represents the Fed's third round of such stimulus since the economy tanked.
However, improving conditions have sparked calls both inside and out of the Fed to begin phasing out QE3 before the program overstimulates things.
Plosser, who's currently a nonvoting member of the Fed's rate-setting Federal Open Market Committee, said he never liked QE3 because "I didn't think it was very helpful and I didn't think it was going have a very big impact."
He predicts the FOMC could begin to discuss phasing the program out as early as the committee's June 18-19 meeting.
"It's clearly on the table either at the next meeting or subsequent meetings should the economy continue to progress the way it's doing," Plosser said. "My preference would be sooner rather than later, but there will be differences of opinion about that."
The central banker said he sees plenty of signs that U.S. labor markets — which the Fed is by law tasked with moving toward "full employment" — are improving despite years of weakness.
For instance, Plosser noted that the jobless rate has dropped from 8.1% last September to 7.5% as of April, while nonfarm payrolls are growing around 200,000 a month vs. 130,000 or so a year ago.
"I think that really says: 'Look, things are better than they were,'" he said. "(So), it makes sense that maybe we can dial (QE3) back a little bit.
"Rather than trying to push our balance sheet up at a rate of $85 billion a month, maybe we can only push it up at the rate of $70 billion or $75 billion or $65 billion," he said. "That still provides accommodation, but at a slower pace."
In other remarks, Plosser said:
- The FOMC should ignore market reactions to its moves. "The goal of the Fed is not to satisfy the stock market or the bond market or anything else," Plosser said. "Our goal is: 'What's the right thing to do for the economy as a whole?'"
- The central bank might consider backing out of QE3's mortgage bond purchases first. Plosser said recent improvements in U.S. home prices and construction starts "might be a good reason for us to gradually begin to step outside the (mortgage) market and let private (investors) take over."
- He doesn't know what Friday's U.S. jobs report will say, but Plosser said Thursday's initial-jobless-claims number and Wednesday's ADP private-sector-payroll numbers did "not particularly (hold) any surprises."
- He's not worried about the fact the U.S. inflation has recently fallen below the Fed's 2 percent target rate. "The real question is ... 'Is inflation going to return toward its 2 percent goal over some period of time," he said. "I think that's likely to be the case."
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