Federal Reserve President Presents Economic Outlook
By Colin McEvoy on October 16, 2014
Making a rare appearance in the Lehigh Valley, Federal Reserve Bank of Philadelphia President and CEO Charles I. Plosser shared his views on the economy and monetary policy with a crowd of about 130 key executives, local business leaders and dignitaries on Thursday.
The presentation at Allentown’s PPL Center was coordinated as a joint event between the Lehigh Valley Economic Development Corporation and the Lehigh Valley Partnership.
Plosser expressed optimism about the economic prospects ahead and explained why he dissented from his colleagues with his position that interest rates should be increased at a faster rate than the central bank has indicated.
“Whether you believe that the labor market has fully recovered or not, and I’m not sure I believe it has, it is clear that we have made considerable progress toward our goals of full employment and price stability,” Plosser said. “We are no longer in the depths of a financial crisis, nor is the labor market in the same dire straits it was five years ago.”
The event marked Plosser’s first visit to the Lehigh Valley since 2009, and one of his few public appearances remaining before his planned retirement on March 1.
“We are fortunate that we’ve had a very good economic run here in the Lehigh Valley in recent years,” LVEDC President and CEO Don Cunningham said. “We are sitting here in the hub of this economic renaissance that’s been taking place across our cities and across the Lehigh Valley.”
Lehigh Valley Partnership President Scott Fainor added: “Dr. Plosser coming here today connects right into our mission around economic development and understanding markets so that we can move our communities forward together. It was a privilege and an honor to be contacted by Dr. Plosser.”
While not suggesting interest rates should be increased now, Plosser explained why he dissented with recent Federal Reserve policy decisions that rates will likely not be raised soon because the labor market has not fully healed.
With a 4.6 percent growth in GDP in the second quarter and the unemployment rate falling to 5.9 percent, Plosser argued the central bank’s policy should be adjusted to reflect data indicating economic improvement, giving the Federal Reserve flexibility to respond sooner and more gradually to economic realities.
“If monetary policy is to be truly data-dependent, then our stance of policy must begin to change,” Plosser said. “I’m not suggesting an immediate rate increase now, but changing the forward guidance would at least afford us the flexibility to gradually raise rates beginning earlier than currently anticipated.”
Waiting too long to raise rates is risky, Plosser said, because it creates a danger of leaving monetary policy behind the curve. That could force rates to be increased very quickly to prevent a rise in inflation, creating unnecessary volatility and a rapid tightening of financial conditions that could disrupt the economy, he said.
Plosser also spoke about economic instability in the Europe, but expressed confidence its impact on the United States economy will be minimal. He noted that Europe only constitutes about 12 percent of total U.S. exports, so the nation’s exposure to that region is relatively small.
“Its impact on us will not be zero, but in and of itself it’s not enough to derail our economy,” he said.
Plosser’s presentation marked the first business function to be hosted by the PPL Center, the downtown Allentown hockey arena that opened its doors for the first time last month.
“I thought he was really insightful, and his insights on the labor market and the interest rate situation were right on point,” Allentown Mayor Ed Pawlowski said. “It was exciting. We’re sitting here in Allentown listening to the president and CEO of the Philadelphia Federal Reserve bank. It doesn’t get any better than that.”
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