–Would Have Preferred More Optimism In FOMC Statement; Outlook Improved
–If Economy Evolves As Expects Sees First FFR Hike In 2012

WASHINGTON (MNI) – Philadelphia Federal Reserve President Charles
Plosser Monday took issue with the Fed’s recent assessment of the U.S.
economy, arguing that the outlook has improved in recent months and that
a rate hike might come sooner than expected if the recovery continues
along his predicted path.

In an interview on CNBC, Plosser — who is not a voter on the
Federal Open Market Committee until 2014 — said while he does not
expect the economy to take off like “a skyrocket” going into 2012, some
areas — like the labor market — are beginning to look a little better.

He described the FOMC’s assessment of economic conditions in the
U.S. economy as “a little bit pessimistic,” adding that he would have
preferred more optimism in the statement.

“I think the outlook has improved over the last several months,”
Plosser said.

“I think there is reason to be hopeful that we are going to make
this continued modest progress towards recovery,” Plosser said.

The Philadelphia Fed chief said he expects U.S. economic activity
in both 2012 and 2013 to expand by about 3%.

Plosser added that he is a bit more optimistic in his outlook for
employment compared to some other senior Fed officials, saying he sees
the unemployment rate close to 8% by the end of this year or “maybe even
a little below that.”

If the economy improves as he expects then rates might have to be
raised sooner, Plosser warned, adding he is worried by the Fed’s
“accelerationist view that it has to go ever faster on monetary policy.”

“We just need to stop thinking that we have to do more,” he said.

As for the idea currently making the rounds that the Fed will
engage in additional purchases of mortgage-backed securities to aid the
depressed housing market, Plosser said he does not see a need for it.

“We have one of the worst housing markets we’ve seen in a
generation … . Do we think lowering mortgage rates another 10 of 15
basis points will actually revive the housing market? I’m very dubious
about that,” he said.

In a statement following its January 23-24 meeting, the FOMC said
it expects economic growth over coming quarters to be modest and that
the unemployment rate will decline only gradually toward levels
consistent with its dual mandate.

As a result, the FOMC said economic conditions “are likely to
warrant exceptionally low levels for the federal funds rate at least
through late 2014.”

“I’m still unhappy with a calendar date in the statement,” Plosser
said, “I don’t think that’s the right way to convey policy.”

The late 2014 date is contingent on the evolution of the economy
Plosser said. “It is not a commitment and it should be interpreted as a
commitment.”

Plosser warned it is important that the market understands the
projections are not forecasts.

“They are projections of what each individual committee member
thinks is appropriate policy. That is, what should be not what will
policy be,” he said.

These projections then will, over time, reflect how policy evolves,
he said.

The January FOMC meeting also saw members for the first time
publish their projections regarding the likely path of short-term
interest rates in the near-term.

Plosser in past speeches made clear he expected the first rate hike
to come before mid-2013, the previous date identified by the Fed as the
minimum length of time for which interest rates would remain near zero.

“I do believe it’s likely to occur between now and before
mid-2013,” Plosser said during the interview. “Whether it occurs in 2012
or early 2013, I’m kind of up in the air about, it could go either way.”

Plosser said he projected a rate hike occurring this year, arguing,
“if the economy evolves, as I think it might, then I think it’s likely
it might.”

** Market News International Washington Bureau: 202-371-2121 **

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