NEW YORK--Federal Reserve Bank of Philadelphia President Charles Plosser said Thursday that he is "reasonably optimistic" about the U.S. economic outlook.
"I am more and more convinced" weakness seen over the first three months of the year was in fact weather related, Mr. Plosser said in remarks at the Council on Foreign Relations. In recent data there's been "a pretty good bounce back" that suggests "we are still on track for about 3% growth" this year.
Mr. Plosser also said he expects inflation to drift slowly back toward the central bank's 2% target, and that over the short term the Fed doesn't have any clear way to boost price pressures from what are clearly very weak levels. He told reporters after his speech he remains upbeat about housing based on the continued rise in prices seen in the nation.
Mr. Plosser's comments follow by a day those of Fed Chairwoman Janet Yellen. On Wednesday, she told Congress that she expects the economy to continue to improve. The central bank head also affirmed that if the economy performs as policymakers expect the Fed will continue to shrink the pace of its bond-buying stimulus program and end it later this year. Ms. Yellen also said that an interest rate increase lie some distance in the future, but she declined to say when the Fed might decide to raise short-term rates off of rock-bottom levels.
In Mr. Plosser's formal remarks, he argued Thursday in favor of central-bank policy-making being more rules-based, as he has many times in the past. He told reporters after his speech that if the Fed were to make policy with less discretion, it would be a good thing for the financial sector. "The Fed needs to be viewed as less of an actor, less a determinant of day-to-day activity," Mr. Plosser said, adding "markets should be focused more on fundamentals and less on monetary policy."
In his speech, Mr. Ploser said "the science of monetary policy has not reached the point where we can specify a rule for setting policy and turn decision-making over to a computer. Judgment is still required." He added, "nevertheless, I place a great deal of importance on systematic behavior both as a prescription for good policy and in terms of my own policy deliberations."
Mr. Plosser said formulas such as the so-called Taylor rule, which argues in favor of policy-setting based on measurements of growth, potential growth and inflation, are useful, at least in "theoretical settings."
If Fed policy had less discretion, the official said, it would be more effective.
"Most academic economists--but, unfortunately, far fewer policymakers--have come to accept the benefits of adhering to rule-like behavior in monetary policy," Mr. Plosser said. "These benefits arise, in part, because consumers and businesses are forward looking, and credible commitments concerning the determinants of the future path of policy can alter expectations in ways that make policy more effective and less uncertain," he said.
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