Philly Fedhead Plosser on the Exit Strategy

Deja vu yet? No, just a different Fedhead on the same subject.


The Federal Reserve will have to raise interest rates as aggressively as it cut them when it becomes clear the economic recovery has taken hold, to avoid flaring up inflation, Charles Plosser, president of the Philadelphia Fed, told CNBC in an interview.

Analysts have been worried that the various stimulus programs and money-printing around the world will cause devaluation and price rises, and some European officials have suggested that all stimulus measures be pulled out at once to prevent that.

The Fed has an exit strategy, which it will apply when needed, Plosser said.

"Our exit strategy is really quite simple: we have to begin to pull back from our extraordinary programs, we have to begin to shrink our balance sheet, otherwise we will feel inflation in the months and years ahead," he said.

For the next few quarters inflation is not a problem but it may become so later unless the Fed orchestrates its exit carefully, according to Plosser.

This is the same guy who believes in a little monetary sanity (in his 2008 Principles of Sound Banking):

Relying on sound principles to guide policymaking is always useful. But it is particularly important and helpful in times of crisis, when the temptation is to abandon all guiding principles and simply react to the daily challenges based on what seems expedient at the time. I believe that adhering to these principles can enhance the effectiveness of monetary policy in these challenging times and can provide insights into how the central bank can promote greater financial stability.

Well... More Fedheads on the exit strategy they likely don't have. Quelle surprise.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.