–Philadelphia Fed Chief Sees US Unemployment at 7.8% by Yearend
–US Treasury Prices ‘Very High,’ in Part on European Flight to Safety

By Claudia Hirsch

NEW YORK (MNI) – Philadelphia Federal Reserve Bank President
Charles Plosser said Wednesday he is cheered by the U.S. labor market’s
progress in recent months and is projecting the jobless rate to ease
to 7.8% by the end of the year.

“I’ve been particularly encouraged over the last year and
particularly over the last six months by how well the labor market has
done,” Plosser said, answering audience and reporters’ questions
following a speech to the Forecasters Club.

“I think we have a long way to go. I hope it continues,” he said,
and added, “I’m more optimistic now than I was, for example, in August.”

Plosser noted the unemployment rate stands more than a full
percentage point below its December 2010 level, an advance that he said
should not be dismissed.

“I think we’re on this gradual, sustainable course,” Plosser said
of the economy’s recovery.

He reiterated his forecast for U.S. inflation to hew to the 2%
target the Fed has recently adopted both this year and next, but said
that commodity prices remain volatile and are likely to affect headline
inflation numbers for “short periods of time.”

“Things are kind of okay with the PCE right now, but if the
headline inflation keeps drifting up that could be cause for some
watchful monitoring.”

Plosser, a non-voter this year and next on the Fed’s policy-setting
Federal Open Market Committee, demurred when asked if the Fed had
created an asset bubble in Treasury securities with its $2.3 trillion in
security purchases aimed at pushing rates down and reviving the economy.

But he did touch on bond prices very generally.

“Are prices very high in the bond market? Yes, they are,” he said.
“One of the things that’s going on in Treasuries in particular is that
we’ve had a flight to safety in Europe. I think that’s been distorting
the bond market in the United States.”

And of the Fed’s inflated balance sheet, he emphasized that it is
critical to return it to “normal” over the long run — or risk its being
manipulated as a new policy tool.

“Who knows what pressures will come on the Fed to use its balance
sheet for other purposes?” he said. “If Congress comes to believe that
our balance sheet is a free tool … I think that’s not a good place to
be.”

Turning to the Fed’s newly more-expansive announcements following
its policy meetings, Plosser decried the mention in the latest statement
of 2014 as the expected horizon for currently ultra-low interest rates.

“I don’t like the calendar dates in the statement,” he said. “I
think that led to some confusion.”

Rather, the FOMC members’ Summary of Economic Projections should
“speak for themselves,” he said. “I think that’s a better way of
communicating this forward guidance.”

In Plosser’s prepared remarks, he said despite recent improvements,
the Fed should do more to enhance the transparency of its monetary
policy communications to the public. He serves on the Fed’s new
subcommittee on transparency.

** Market News International New York Bureau, Tel: 212-669-6430 **

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