NEW YORK – Monetary policy cannot cure all the economy’s ills, and expecting it to do so may make things worse, Federal Reserve Bank of Philadelphia President and Chief Executive Officer Charles I. Plosser said Monday.
Saying he is “concerned that we are in the process of assigning to monetary policy goals that it cannot hope to achieve,” Plosser explained, “Monetary policy is not going to be able to speed up the adjustments in labor markets or prevent asset bubbles, and attempts to do so may create more instability, not less.”
He continued, “Nor should monetary policy be asked to perform credit allocation in support of particular sectors or firms. Expecting too much of monetary policy will undermine its ability to achieve the one thing that it is well-designed to do: ensuring long-term price stability.”
By achieving long-term price stability, Plosser told an audience in Chile, according to prepared text of his remarks, which were released by the Fed, “monetary policy is best able to support full employment and sustainable growth over the longer term, which benefits all in society.”
