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Fed’s bond-buying could soon backfire: Plosser

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Jan 11, 2011

The U.S. Federal Reserve’s aggressive bond-buying plan could soon backfire unless the central bank gradually changes course to head off inflation, a top Fed official known for his hawkish stance said on Tuesday.

Philadelphia Federal Reserve Bank President Charles Plosser said the $600-billion quantitative easing plan, known as QE2, would need to be reconsidered if the U.S. economy’s current “moderate recovery” picks up steam.

The prospect of sustained price deflation — a worry for Fed Chairman Ben Bernanke and other backers of the controversial QE2 plan — is highly unlikely in part because the Fed’s massive reserves will eventually flow out into the economy, Plosser added.

“If the economy begins to grow more quickly and the sustainability of this recovery continues to gain traction, then the purchase program will need to be reconsidered along with other aspects of our very accommodative policy stance,” Plosser said in prepared remarks.

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This article was posted: Tuesday, January 11, 2011 at 11:26 am

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