A senior Federal Reserve official Thursday said he wants the central bank to begin tapering its open-ended bond-buying program by about mid-June.
"As a practical matter, I would like to see us slow down purchases and would like to see it starting as soon as the next meeting, if the data support it," Philadelphia Federal Reserve Bank President Charles Plosser said, referring to the June 18-19 gathering of the Fed's policy-setting Open Market Committee.
Answering reporters' questions at the Simon New York City Conference, Plosser, a non-voter this year on the FOMC, has made no secret of his long-standing opposition to the Fed's so-called quantitative easing. He told his Simon Conference audience earlier that the Fed's latest round of asset purchases, $85 billion a month in mortgage-backed securities and Treasuries, has had a modest benefit, at best, for U.S. employment.
"The challenges we face in this economy have little to do with monetary policy," he said Thursday afternoon.
Still, he described to reporters a "fair amount of progress" since last September in boosting job creation and quelling unemployment.
He said the closely watched monthly payrolls number averaged about 135,000 prior to September 2012 and over 200,000 since then.
"Well, that's a pretty good step up," the Philadelphia Fed chief said.
Unemployment is "on track to be near 7% by the end of the year," and "close to 6.5% or thereabouts" by the end of 2014, Plosser said. Economic growth, meanwhile, should come "close to 3%" this year and next.
Plosser said he would "like to see us get on a stronger growth path," but that there are "a lot of uncertainties out there" that are "holding back" GDP. He said he hopes a GDP rate of 2.5% does not prove to be a new, "lower trend growth."
Despite data that show inflation running below the Fed's target of 2%, Plosser said he is not yet worried about deflation.
"Expectations still look pretty well anchored," he said. Waning inflation expectations would be "more concerning to me than actual deflation," he added.
He is waiting to see how much of the recent declines in commodity prices pass-through to consumer prices and said the Fed would, when and if necessary, communicate its commitment to fighting deflation, including over the long term.
He earlier told his audience that he is concerned the eventual unwinding of quantitative easing could spark inflation, fast-rising interest rates, and cause disruptions in financial markets.
"We are in uncharted territory," with regard to exiting QE, he said. "We have the tools," he said, but added that he and his colleagues do not know, for instance, how fast interest on excess reserves will have to rise to stem any inflation from the outflow of those reserves.
Asked if the Fed will take any special precautions against shock effects from its QE exit, Plosser again said communication is the key.
"About the only option we have is to be transparent, to say what we're doing and why we're doing it.
"We can't always control market reactions."
He said market participants should "be prepared that the Fed could "slow purchases or speed up purchases" as necessary.
"We certainly will try to signal what our plans are."
In his prepared remarks, Plosser said the Dodd-Frank financial regulatory reform law does not address the problem of "too-big-to-fail" financial institutions and urged a totally different approach.
Plosser called for a new, simpler system for dealing with failing financial firms that would involve both higher capital requirements and a specialized bankruptcy procedure.
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