Charles Plosser Comments on Fed Policy

Charles Plosser, in an appearance on CNBC, gave his opinion on recent Federal Reserve policy decisions and his outlook for the US economy. Plosser reiterated his opposition to the process of using calendar dates in the Fed's statement on the economic outlook. Plosser said that the state of the economy should dictate when policy should change, not the calendar date. Plosser said that the US economy has seen a firming of growth, and the recent decline in the unemployment rate has been "remarkable." Yet, Plosser was cautiously optimistic on the economy, and that it will still need a while to fully repair itself given the tremendous shock the economy experienced in the fall of 2008. On rates, Plosser said the Fed could raise rates in 2012 if economy and employment continue to improve in the next six months. He stated that the Fed could still raise rates somewhat and be in a very easy policy stance--1% is still accomdative. Plosser stated that if things don't work out, the Fed could set up the economy for real inflation, but that the real risk for inflation is in the longer term when Fed knows it must remove easing but cannot remove easing quickly enough. On Europe, Plosser said European governments seem intent to manage themselves through the crisis. Plosser said he was more comfortable that Europe could get through it without a financial implosion. Plosser said he was not in favor of the Fed purchasing mortgage-backed securities. He stated that early in the crisis, the Fed was trying to address the possibility of a true financial meltdown. Yet, the Fed must now step back from crisis-mode thinking.