By Jon Hurdle
PHILADELPHIA (MNI) – Philadelphia Federal Reserve Bank President
Charles Plosser said Wednesday that the Fed should not have
mortgage-backed securities on its balance sheet, and that Operation
Twist is really an instrument of fiscal, not monetary policy.
“I would like to see us out of mortgage-backed securities,” Plosser
said during questions following a speech to a real estate conference at
the University of Pennsylvania. “It’s dangerous for us to be in the
credit-allocation game.”
Plosser, who dissented from the FOMC’s recent “Twist” decision to
buy $400 billion in long-term Treasury securities, said the Fed should
be swapping mortgage-backed securities for Treasuries, and that keeping
MBS on its balance sheet could imperil the Fed’s independence.
“It has the potential of dragging us into the political arena,” he
said.
Asked to name a specific inflation target if, as he has frequently
advocated, the central bank adopts such a target as a goal of monetary
policy, Plosseer said the precise number matters less than the existence
of the target, which is use by the European Central Bank and others, but
not the Fed.
“It’s about having the central bank behave in such a way that
central bankers can be held accountable” for achieving the target, he
said.
He expressed confidence that the dollar will remain the world’s
principal reserve currency, and said the Fed uses the dollar’s value as
a signal rather than a goal for setting monetary policy.
“I look at it as a signal, not as an object of monetary policy,” he
said.
Although Plosser has said the Fed has little room for further
monetary policy accommodation with interest rates near zero and two
rounds of quantitative easing conducted, it stands ready to act in the
event of further market turmoil, he said.
“If there was a financial meltdown of some kind, the Fed would play
the role of lender of last resort,” he said.
** Market News International **
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