LONDON (MNI) – The hurdle for any further quantitative easing in
the US is set very high, Charles Plosser, president of the Philadelphia
Federal Reserve said Thursday.

Speaking on BBC Radio 4, Plosser was pressed on the possibility
that the Fed might do more QE, “I think the hurdle is very high,”
he responded.

Plosser was less than upbeat about the state of the recovery in the
States, underlining that many foresaw a slow and drawn-out recovery.

“Many of us have been saying for a long time that this was not
going to be a great recovery. It was always going to be a long slog and
recoveries are never uniform, never linear and will have setbacks,” he
said.

But he was more reassuring when recalling that the US economy came
through a soft patch in the summer of 2010.

“Last year, we had the summer doldrums, but the economy bounced
back in the third and fourth quarter”, he said.

But echoing comments made earlier this week by Fed Chairman Ben
Bernanke, Plosser said many of the factors currently inhibiting the
economy were transitory.

“This year, we have had several exogenous, external shocks to the
economy, with the Japanese earthquake and tsunami tragedy. The
disruption of supply to many manufacturers, Middle East and North
Africa, the oil price and the severe weather this January”, he said.

“These are a lot of obviously transitory factors that have hit the
economy recently and the real question going forward is will those
transitory factors dissipate or how quickly will they dissipate and
will we get back to that steady but moderate growth”, he added.

Plosser also addressed inflation and whether ongoing quantitative
easing in the US is helping fuel the rise in global commodity prices.

“At some point (QE) does push commodity price inflation. In the US,
additional reserves are largely sitting in bank accounts and are not
creating inflation — at least not yet, but they do have the potential
to do that,” Plosser said.

“I think that the challenges the US faces with the rise in
commodity prices are not a direct result of Fed action but are the
result of global demand and other things going on that are probably much
more important”, he added.

Plosser recalled that inflation is ultimately a result of central
bank policy rather than a function of high oil or commodities prices.

“The danger we face from inflation point is that – inflation
ultimately is a monetary phenomena, it is caused by central banks, it is
not caused by the oil price”, he said.

On inflation, Plosser again affirmed his support for the Fed
adopting an inflation target.

“I am a fan of inflation targeting and have been for almost two
decades now,” he said.

“It states clearly what the central bank is trying to achieve,
shows the public what the central bank is trying to achieve. This helps
anchor inflation expectations if it shows central banks meeting their
target,” he added.

–London Bureau; Tel: +442076341655; email: ukeditorial@marketnews.com

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