PhillyDeals: Phila. Fed head offers critical assessments - or does he?

Charles I. Plosser: Some called his remarks critical of the next Fed chief. "That's not correct," he said.
Charles I. Plosser: Some called his remarks critical of the next Fed chief. "That's not correct," he said.
Posted: January 21, 2014

A few weeks ago, just after the Federal Reserve let him back onto its policy-setting Open Market Committee (he rotates on and off), Philadelphia's Federal Reserve Bank president, Charles I. Plosser, got investors' attention when he told a crowd of economists that the Fed might be forced to raise interest rates rapidly to unwind lame-duck chairman Ben Bernanke's cheap-money policy.

"Plosser rattled the stock markets a bit," Steve Goldstein told readers of the Wall Street Journal's MarketWatch that day.

Any Plosser plunge was quickly reversed by more soothing statements by other Fed figures. But, according to Reuters, Plosser went on to take a shot at Janet Yellen, who will replace Bernanke next month, when he dissed the kind of cyclical mathematical modeling favored by Yellen as a basis for rate targeting and other economic policy.

Plosser is a bit of an ideologue and an extremist, at least by current Fed standards. He is skeptical that the central bank can execute its congressional mandate to control unemployment by applying monetary policy on a long-term basis. He has voted against Bernanke-led measures to boost the Fed's holdings of mortgage bonds and other arcane financial creatures. Plosser prefers good old Treasury bills.

Plosser has said the 2008 recession, which provoked all that "aggressive" Fed reaction, had whacked the U.S. economy with "a permanent hit to the output level."

Plosser put less emphasis on the scary interest-rates-will-rise stuff Wednesday at a Union League talk sponsored by La Salle University. He said dumping other bonds and "returning to an all-Treasuries portfolio" will be "easy in principle, challenging to execute smoothly."

'Not correct'

He also put dissension in context, saying:

"Diverse views are represented [at the Fed]. In this way, the institution avoids groupthink."

The whole reason Plosser is on the FOMC this year is that he holds a job in which he's supposed to represent the Philadelphia region at the nation's central bank, and vice versa.

I asked Plosser about that "permanent hit" and whether he meant to tie it to Fed policy. No, he said: "A lot of that decline was stuff that was going to occur anyway."

It is also due to the aging of the labor force, he added.

How about the gap between him and Yellen?

"Some people interpreted my remarks as critical to the incoming chair. That's not correct. That's some people's interpretation," Plosser said.

Speaking generally

True and different models, including those he doesn't agree with, will yield "different policy prescriptions," and different results, Plosser explained. But his remarks "were not necessarily directed at any individual or individual policy."

They were just "a general statement of riskiness," he added.

What's going on here? Is Plosser positioning himself as one of the people who might replace Yellen in a future Republican presidency?

Was he asked to

tone down the suggestion of dissension at the Fed, or is he self-censoring?

And is he doing his job representing Philadelphia

businesses, bankers, wage-earners, and rent-payers to the Federal Reserve?



comments powered by Disqus