NEW YORK - Philadelphia Federal Reserve Bank President Charles Plosser reiterated his opposition to further monetary easing Tuesday morning, warning the Fed may already have set the stage for increased inflation as well as financial market "distortion" with the easy monetary policy it is already running.

Plosser argued against what he called "accelerationist" policies and warned that further "aggressive" efforts to bring down unemployment would lead the U.S. economy down "a very treacherous path."

Though not a voting member of the policymaking Federal Open Market Committee this year, Plosser is on a subcommittee headed by Fed Vice Chair Janet Yellen which has been advising the FOMC on communication. And he again opposed the FOMC's decision to extend its expected period of near zero short-term interest rates to at least late 2014.

San Francisco Fed President John Williams in a speech Monday night expressed the view that, if anything, inflation is apt to be too far below the FOMC's 2% inflation target.

But Plosser disagreed in his speech prepared for delivery at the University of Delaware in Newark, Delaware.

"Inflation risks in the near term remain modest," he said. "However, I remain concerned that monetary policy has exposed us to substantial inflation risk over the medium to longer term."

Plosser warned that "inflation often develops gradually, and if monetary policy waits too long to respond, it can be very costly to correct." He added that high unemployment and other measures of resource slack are no guarantee against wage-price pressures.

"Thus, we need to proceed with caution and be circumspect as to the degree of monetary accommodation we supply to the economy."

Williams, among others, has suggested that the Fed may need to approve a third round of quantitative easing. But Plosser left no doubt he would opposed a QE3.

Plosser said "despite the extraordinary steps taken to support the economy, many argue that monetary policy should do more. The argument is that while inflation may be close to our target, unemployment remains elevated, and thus, monetary policy must act more aggressively if it is to meet its mandated employment objective.

"I disagree and believe that doing so would lead us down a very treacherous path -- one that would be ever more difficult to navigate and one that would increase the already substantial risk of higher inflation," Plosser said, adding that "the problem is not just inflation risk down the road. Prolonged efforts to hold interest rates near zero can lead to financial market distortions and the misallocation of resources."

Plosser went on to warn against the hazards of "constant acceleration" of monetary accommodation.

He maintained that "such an accelerationist approach to monetary policy is risky and the potential costs may be quite high. It is an approach most often driven by an excessive focus on the short run and perhaps some hubris that we will be able to successfully avert the risks such a strategy poses for the economy over the longer run."

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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