Concerns the Economy Was About to Fall Off a Cliff Have Dissipated – Plosser

Federal Reserve Bank of Philadelphia President Charles Plosser spoke with FOX Business Network’s (FBN) Peter Barnes about the United States economy and whether the Federal Reserve will take further action to aid in the recovery. Plosser said “concerns we had in July, August, and September that the economy was at risk of falling off a cliff have pretty much dissipated” and thus he does not see any reason for the Federal Reserve to implement QE3 right now.

Excerpts from the interview can be found below, courtesy of FOX Business Network.

On whether we need QE3:

“I don’t see that right now. The volatility and concerns we had in July, August, and September that the economy was at risk of falling off a cliff have pretty much dissipated. It’s not we are going great guns so to speak, we would all like to be going faster. But the underlying path of the economy of this low, modest recovery seems to still be in train. I don’t see anything that calls for further stimulus at this point. The biggest underlying risk to the economy right now is what happens in Europe.”

On why he changed his vote from dissenting on further stimulus to vote against further stimulus at the FOMC meeting last week:

“It’s important that I support the committee. My views were known. I didn’t see any point in changing the stance of policy. I think it’s dangerous for policy to be jerked around meeting to meeting. I would prefer if we weren’t taking any more action it makes sense not to dissent.”

On what it will take the Federal Reserve to enact additional stimulus:

“There are two things that would generate more aggressive action on the part of the Fed. If we were facing a serious deflationary period and the risks of financial spillover effects from a crisis in Europe. The Fed needs to be prepared to act in that regard as well.”

On why he believes transparency creates better policy:

“Policy making creates its own form of uncertainty. People have to plan ahead to make decisions today. Good policy reduces the volatility of future policy. It’s never going to be guaranteed because the word changes. The more guidance and clarity we can offer about how policy decisions evolve, the more certain economic agents are today. They can make plans, you get less volatility, more growth.”

On whether he would extend his target inflation rate for the economy to GDP growth and unemployment:

“I don’t think the Central Bank has the ability to target an unemployment rate or GDP growth; there are too many other factors influencing those. It’s one thing to have an inflation target because inflation is a monetary phenomenon. The Central Bank is the only institution that controls inflation. It’s very important we recognize in terms of accountability that is our responsibility.”

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