Philadelphia Federal Reserve CEO gives SCCCC economic report

Posted by Emily Myers on October 10, 2012

Using monetary policy to reduce unemployment is not effective and poses long term risks warned Charles I. Plosser, President and CEO of the Federal Reserve Bank of Philadelphia. “Monetary policy is no cure all” Plosner told Southern Chester County Chamber of Commerce members gathered to hear his economic report Thursday, Oct. 11 at Hartefeld National in Avondale.

The $3 trillion dollar in assets, that that the Federal Reserve has purchased, for so called monetary easing, are themselves part of the long term risk. At some point, the Federal Reserve will divest itself of those assets. One risk is financial instability because of the distortion in the markets as a result of low interest rates. Another risk is the loss of the investment.

One challenge facing the Federal Reserve is the timing of buying and selling assets. Another challenge is not to over invest in any particular sector. Plosser disagreed with the decision in September to purchase mortgage backed securities at a rate of $40 billion per month. Plosser is not a voting member of the policy-making Federal Open Market Committee (FOMC) this year.

Plosser projects that the GDP will grow modestly at a rate of 2 percent with a gradual improvement employment. He projects modest inflation.

Uncertainty is restraining personal and business spending which has slowed the economic recovery. Domestic and European economic uncertainty is not something which the Federal Reserve can address, but at least some domestic policies should be more well defined in the next six months. Businesses will be able to plan and hire when they know the details of taxes and regulations.

When asked about impact of Dodd-Frank Act, Plosser said that the legislation will impose a large amount of regulation throughout the financial industry and government institutions. The Federal Reserve is working through its understanding of the intent of the law to articulate the rules that will apply.

When ask about political pressure, Plosser stated that although he sometimes disagrees with his colleagues, they all try to find the best way to guide the economy to health. It is a complicated job, and there are honest differences of opinion by smart people.

(Photo Credit: Pam Hesler)

About Emily Myers

Emily Myers has lived and worked in Chadds Ford for over thirty five years. She founded the parent company of Chadds Ford Live, Decision Design Research, Inc., in 1982. ChaddsFordLive.com represents the confluence of Myers' long time, deep involvement in technology and community. Myers was a founding member of the Chadds Ford Business Association and currently serves on its board of directors. Her hobbies include bridge, golf, photography and Tai Chi. She lives with her husband, Jim Lebedda, in Chadds Ford Township.