Two top Federal Reserve officials offered differing views on monetary policy on Tuesday, with one warning the Fed’s ultra-easy stance may soon backfire, and the other saying he is comfortable with it.
Both officials — Philadelphia Federal Reserve Bank President Charles Plosser, who warned the Fed’s aggressive bond-buying plan could stoke inflation, and Minneapolis Fed Bank President Narayana Kocherlakota, who said there’s little evidence it is doing so — have a vote this year on the Fed’s policy-setting panel.
Their dueling perspectives suggest the kind of debate taking shape before Fed Chairman Ben Bernanke convenes the panel’s first meeting this year on January 25-26.
The U.S. central bank has kept short-term interest rates at near zero for more than two years to combat the worst recession in decades, and used the purchase of $1.7 trillion in Treasuries and mortgage-backed securities to push borrowing costs still lower.
Faced with still-high unemployment, too-low inflation and a stumbling recovery, the Fed began a new round of so-called quantitative easing on November 3, saying it will purchase $600 billion of Treasuries through June.
Plosser, known for his hawkish stance on inflation, said the latest bond-buying would need to be reconsidered if the U.S. economy’s current “moderate recovery” picks up steam.
“If the economy begins to grow more quickly and the sustainability of this recovery continues to gain traction, then the purchase program will need to be reconsidered along with other aspects of our very accommodative policy stance,” Plosser said in a speech in Philadelphia.