The Federal Reserve’s accommodative policy may prove problematic without steps to remove accommodation, Federal Reserve Bank of Philadelphia president Charles Plosser said Tuesday.
“The aggressiveness of our accommodative policy may soon backfire on us if we don’t begin to gradually reverse course,” Plosser said according to a text prepared for a speech to the Philadelphia chapter of the Risk Management Association.
“If the economy begins to grow more quickly and the sustainability of this recovery continues to gain traction, then the [$600 billion Treasury] purchase program will need to be reconsidered along with other aspects of our very accommodative policy stance.”
The U.S. is enmeshed in a modest recovery from the 18-month-long recession that ended in June 2009. Diane Swonk, chief economist of Mesirow Financial, said Plosser’s remarks were noteworthy because they confirm his discontent and define him as a dissenter on the policy-making Federal Open Market Committee.
Plosser also questioned the wisdom of hiding FOMC dissent given the level of uncertainty that the Fed faces, according to Swonk. Federal Reserve Bank of Kansas City president Thomas Hoenig has largely represented dissenting FOMC views in recent months.
“Plosser was also quick to defend his right to a dissenting view, and presumably a dissenting vote, on the grounds of transparency,” Swonk said. “He questioned the wisdom of hiding dissent given the level of uncertainty that the Fed faces in such challenging times: Too bad if it confuses market participants. Charlie is particularly sensitive about creating too great a sense of security for financial market participants, who have a habit of discounting risk.”
Plosser said he favors policymakers expressing differing opinions. “The uncertainty is real,” he said. “It would be disingenuous and misleading to suggest otherwise.”
Swonk said three known dissenters join the FOMC’s voting ranks this month.